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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-K
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1995
or
/ / Transition Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the transition period from to
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Commission File Number 1-8472
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HEXCEL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-1109521
(State of Incorporation) (I.R.S. Employer Identification No.)
5794 W. Las Positas Boulevard
Pleasanton, California 94588-8781
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (510) 847-9500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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COMMON STOCK NEW YORK STOCK EXCHANGE
PACIFIC STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
7% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2011
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value as of March 15, 1996 of voting stock held by
nonaffiliates of the registrant: $162,227,491.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
of reorganization confirmed by a U.S. Bankruptcy Court.
Yes X No
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The number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 15, 1996
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COMMON STOCK 36,114,927
DOCUMENTS INCORPORATED BY REFERENCE:
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS (TO THE EXTENT SPECIFIED
HEREIN) -- PART III.
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PART I
ITEM 1. BUSINESS.
GENERAL DEVELOPMENT OF BUSINESS
Hexcel Corporation, founded in 1946, was incorporated in California in
1948, and reincorporated in Delaware in 1983. Hexcel Corporation and
subsidiaries (herein referred to as "Hexcel" or the "Company") is an
international developer and manufacturer of lightweight, high-performance
composite materials, parts and structures for use in the commercial aerospace,
space and defense, recreation and general industrial markets. The Company
serves international markets through manufacturing and marketing facilities
located in the United States and Europe, as well as sales offices in Asia,
Australia and South America. The Company is also a partner in three joint
ventures that manufacture and sell composite materials in the U.S. and Asia.
ACQUISITION OF THE CIBA COMPOSITES BUSINESS
Hexcel acquired the worldwide composites division of Ciba-Geigy Limited, a
Swiss corporation ("Ciba"), and Ciba-Geigy Corporation, a New York corporation
("CGC"), including Ciba's and CGC's composite materials, parts and structures
businesses (the "Ciba Composites Business"), on February 29, 1996. The Ciba
Composites Business is engaged in the manufacture and marketing of composite
materials, parts and structures for aerospace, recreation and general industrial
markets. Product lines include fabrics, prepregs, adhesives, honeycomb core,
sandwich panels and fabricated components, as well as structures and interiors
primarily for the commercial and military aerospace markets.
The acquisition of the Ciba Composites Business was consummated pursuant to
a Strategic Alliance Agreement dated as of September 29, 1995 among Ciba, CGC,
and Hexcel, as amended (the "Strategic Alliance Agreement"). Under the
Strategic Alliance Agreement, the Company acquired the assets (including the
capital stock of certain of Ciba's non-U.S. subsidiaries) and assumed the
liabilities of the Ciba Composites Business other than certain excluded assets
and liabilities, in exchange for: (a) approximately 18.0 million newly issued
shares of Hexcel common stock; (b) $25.0 million in cash; and (c) undertakings
to deliver to Ciba and/or one or more of its subsidiaries, following completion
of certain post-closing adjustment procedures contemplated by the Strategic
Alliance Agreement, senior subordinated notes in an aggregate principal amount
of approximately $43.0 million, subject to certain adjustments (the "Senior
Subordinated Notes"), and senior demand notes in a principal amount equal to the
cash on hand at certain of Ciba's non-U.S. subsidiaries (the "Senior Demand
Notes"). (The pro forma aggregate principal amount of the Senior Subordinated
Notes as of December 31, 1995 was $27.4 million. See Note 3 to the Consolidated
Financial Statements included in this Annual Report on Form 10-K.) Pursuant to
the Strategic Alliance Agreement, certain assets of the Ciba Composites Business
and certain assets of Ciba affiliates that will continue to act as distributors
for the Ciba Composites Business will be acquired by the Company from time to
time prior to February 28, 1997.
In connection with the acquisition of the Ciba Composites Business, Hexcel
obtained a new three-year revolving credit facility of up to $175.0 million (the
"Senior Secured Credit Facility") to: (a) fund the cash component of the
purchase price; (b) refinance outstanding indebtedness under certain U.S. and
European credit facilities; and (c) provide for the ongoing working capital and
other financing requirements of the Company on a worldwide basis. Further
discussion of the Senior Secured Credit
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Facility is included in "Management Discussion and Analysis" and in the Notes to
the Consolidated Financial Statements included in this Annual Report on Form 10-
K.
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 1996. 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. This is attributable, in part, to aerospace industry requirements
to "qualify" specific equipment and manufacturing facilities for the manufacture
of certain products. Based on the Company'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.
The Board of Directors of Hexcel has not yet approved the plan for
combining the operations of Hexcel and the Ciba Composites Business, but is
expected to do so in the second quarter of 1996. Subject to the approval of the
consolidation plan by the Board of Directors, management currently estimates
that the cash costs of combining the two businesses could range from $35 million
to $45 million, net of expected proceeds from asset sales which are expected to
be received at the end of the consolidation process. (This range includes the
estimated net cash cost to close the Anaheim manufacturing facility acquired as
part of the Ciba Composites Business. The decision to close this facility was
announced in the first quarter of 1996.) Management notes, however, that the
actual cash costs of combining the two businesses could vary from current
estimates due to the fact that the nature, timing and extent of certain
consolidation activities is dependent on numerous factors.
Management expects to record one or more charges to earnings for the
estimated costs of certain business consolidation activities. The estimated
costs of specific consolidation activities will be accrued in accordance with
generally accepted accounting principles as those activities are determined and
announced. Although the aggregate amount of the resulting charges to earnings
has not yet been determined, management currently estimates that the amount
could range from $40 million to $50 million, including noncash charges.
However, the actual aggregate amount of such charges could vary from current
estimates.
The nature, timing and extent of consolidation activities 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. Management anticipates that the benefits to
be realized from planned consolidation activities will be sufficient to justify
the level of associated costs. However, some of the anticipated benefits are
long-term in nature, and there can be no assurance that such benefits will
actually be realized.
Further discussion of the acquisition of the Ciba Composites Business is
included in "Management Discussion and Analysis" and in the Notes to the
Consolidated Financial Statements included in this Annual Report on Form 10-K.
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BANKRUPTCY REORGANIZATION
On January 12, 1995, the United States Bankruptcy Court for the Northern
District of California (the "Bankruptcy Court") entered an order dated January
10, 1995 confirming the First Amended Plan of Reorganization (the
"Reorganization Plan") proposed by Hexcel and the Official Committee of Equity
Security Holders (the "Equity Committee"). On February 9, 1995, the
Reorganization Plan became effective and Hexcel emerged from the bankruptcy
reorganization proceedings which had begun on December 6, 1993, when Hexcel
filed a voluntary petition for relief under the provisions of Chapter 11 of the
federal bankruptcy laws.
Further discussion of the Reorganization Plan and Hexcel's emergence from
bankruptcy reorganization proceedings is included in "Management Discussion and
Analysis" and in the Notes to the Consolidated Financial Statements included in
this Annual Report on Form 10-K.
INDUSTRY SEGMENT
Hexcel operates within a single industry segment: composite materials,
parts and structures. The Company sells these materials, parts, and structures
throughout the world. The net sales, income (loss) before income taxes,
identifiable assets, capital expenditures, and depreciation and amortization for
each geographic area for the past three years are included in Note 21 to the
Consolidated Financial Statements included in this Annual Report on Form 10-K.
BUSINESS
As discussed above, Hexcel acquired the Ciba Composites Business on
February 29, 1996. Prior to the acquisition, the Company was organized around
worldwide research, manufacturing, marketing and administrative functions with
global responsibility for all of the Company's product groups. Those product
groups, which have historically been manufactured and marketed primarily in the
U.S. and Europe, were comprised of reinforcement fabrics, prepregs and
adhesives, and honeycomb, including structural products made from honeycomb.
In connection with the acquisition of the Ciba Composites Business, Hexcel
has been reorganized into strategic business units according to specific product
groups and/or geographic areas. The research, manufacturing and marketing
activities of each of the strategic business units are supported by global
administrative functions such as human resources, finance and information
systems, legal affairs, and research and technology coordination. The
acquisition of the Ciba Composites Business provides the Company with additional
manufacturing and marketing capabilities in its reinforcement fabrics, prepregs
and adhesives, and honeycomb product groups, in geographically complementary
areas. In addition, the acquisition expands the Company's range of product
offerings to include structural parts and interiors, primarily for the
commercial and military aerospace markets.
The following is a description of Hexcel's new strategic business units,
including their respective product groups and geographic areas, and the
integrated manufacturing capabilities of the Company.
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FABRICS
The Fabrics business unit has worldwide responsibility for manufacturing
and marketing reinforcement fabrics. The business unit operates manufacturing
facilities in Les Avenieres, France; Lyon, France; and Seguin, Texas; and is
responsible for Hexcel's participation in a joint venture with Owens-Corning
Fiberglas Corporation.
The Fabrics business unit produces woven reinforcement fabrics, without
resin impregnation, from the same fibers Hexcel uses in prepregs. These fibers
include several types of fiberglass as well as carbon, aramid, Thorstrand
- -Registered Trademark-, quartz, ceramic and other specialty reinforcements.
Reinforcement fabrics are sold for use in numerous applications. These
include aerospace, marine, automotive and recreation applications, as well as
ballistics protection, printed circuit boards, metal and fume filtration
systems, insulation, window coverings, and civil engineering and other general
industrial applications.
In addition, Hexcel owns a 50% interest in a joint venture with Owens-
Corning Fiberglas Corporation. The Knytex joint venture, which was formed in
June of 1993, sells multi-layer stitchbonded reinforcement fabrics which are
stronger in all directions and generally lower cost than traditional woven
fabrics. Knytex fabrics consist of multiple layers of reinforcement material,
in varying orientations, which are stitched together to preserve the desired
orientation of the various layers.
Hexcel's net sales of reinforcement fabrics were $119.1 million in 1995,
$94.8 million in 1994 and $93.0 million in 1993. As a result of the acquisition
of the Ciba Composites Business on February 29, 1996, net sales of reinforcement
fabrics are expected to increase in 1996. The Ciba Composites Business had net
sales of reinforcement fabrics totaling approximately $23 million in 1995.
COMPOSITE MATERIALS
The Composite Materials business unit, which is organized around U.S. and
European markets, has worldwide responsibility for manufacturing and marketing
prepregs, adhesives and honeycomb. The business unit operates manufacturing
facilities in Welkenraedt, Belgium; Duxford and Swindon, England; Lyon, France;
Casa Grande, Arizona; Anaheim, Dublin, and Livermore, California; and Lancaster,
Ohio. (In the first quarter of 1996, Hexcel announced its decision to close the
Anaheim facility and relocate certain production activities from Anaheim to
other manufacturing sites.) Subject to the Company's acquisition of an Austrian
subsidiary of Ciba as contemplated by the Strategic Alliance Agreement, the
Composite Materials business unit will also operate a manufacturing facility in
Linz, Austria. This business unit is also responsible for Hexcel's
participation in a joint venture with Fyfe Associates Corporation.
The following is a description of the major product groups manufactured and
marketed by the Composite Materials business unit.
PREPREGS AND ADHESIVES
Prepregs combine high performance reinforcement fibers with a resin
matrix to form a composite material with exceptional structural properties
not present in either of the constituent materials. Hexcel impregnates
woven fabrics and non-woven fibers aligned in a single direction
(unidirectional tape).
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The Composite Materials business unit produces prepreg materials from
a variety of reinforcements including S-2-Registered Trademark- and E-type
fiberglass, carbon, aramid, quartz, ceramic, Thorstrand-Registered
Trademark-, polyethylene and other specialty reinforcements. Hexcel offers
a variety of resin matrices including bismaleimide, cyanates, epoxy,
phenolic, polyester, polyimide and other specialty resins.
Prepregs are sold to the commercial aerospace, space and defense,
recreation and general industrial markets. Product applications include
aircraft, mass transit and automotive components, as well as defense
systems, military support equipment, athletic shoes, fishing rods, tennis
rackets, golf clubs, surfboards, snow skis, snow boards and bicycles.
As a result of the acquisition of the Ciba Composites Business, Hexcel
designs and markets a comprehensive range of Redux-Registered Trademark-
film adhesives. These adhesives, which bond a wide range of composite,
metallic, and honeycomb surfaces, are used in aerospace, automotive, marine
and other applications.
HONEYCOMB
Honeycomb is a unique, lightweight, cellular structure composed of
generally hexagonal cells nested together. The product is similar in
appearance to a cross-sectional slice of a beehive. The hexagonal cell
design gives honeycomb a high strength-to-weight ratio when used in
"sandwich" form and a uniform resistance to crushing. These basic
characteristics are combined with the physical properties of the material
from which the honeycomb is made to meet various engineering requirements.
The Composite Materials business unit produces honeycomb from a number
of metallic and non-metallic materials. Most metallic honeycomb is made
from aluminum and is available in a selection of alloys, cell sizes and
dimensions. Non-metallic honeycomb materials include fiberglass, carbon,
thermoplastics, Nomex-Registered Trademark- (a non-flammable aramid paper),
Kevlar-Registered Trademark- (an aramid fiber) and several other specialty
materials.
The Composite Materials business unit sells honeycomb core material in
standard block and sheet form. In this construction, sheets of aluminum,
stainless steel, prepreg or other laminates are bonded with adhesives to
each side of a slice of honeycomb core, creating a "sandwich" structure.
Hexcel possesses autoclave and other advanced processing capabilities which
enable the Company to manufacture complex bonded assembly parts.
The largest market for Hexcel's honeycomb products is the aerospace
market. Non-aerospace honeycomb applications include high-speed trains and
mass transit vehicles, automotive parts, energy absorption products,
athletic shoe components, marine vessel compartments, portable shelters,
business machine cabinets and other general industrial uses.
Hexcel also owns a 40% interest in a joint venture with Fyfe Associates
Corporation. Hexcel-Fyfe, which was formed in October 1992, sells and applies
high-strength architectural wrap for seismic retrofitting and strengthening of
bridges, columns and other structures.
Hexcel's net sales of prepregs, adhesives and honeycomb (including machined
and fabricated honeycomb parts), sold separately and together as complex bonded
structures, were $231.1 million in 1995, $219.0 million in 1994 and $217.6
million in 1993. As a result of the acquisition of the Ciba
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Composites Business on February 29, 1996, net sales of prepregs, adhesives and
honeycomb are expected to increase in 1996. The Ciba Composites Business had
net sales of prepregs, adhesives and honeycomb totaling approximately $195
million in 1995.
SPECIAL PROCESS
The Special Process business unit has worldwide responsibility for
designing, manufacturing and marketing machined and fabricated honeycomb parts
for use in commercial and military aerospace, automotive, and other
applications. The business unit operates manufacturing facilities in
Pottsville, Pennsylvania and Burlington, Washington, as well as special process
activities in Hexcel's Welkenraedt, Belgium; Duxford and Swindon, England; Casa
Grande, Arizona; and Bellingham, Washington facilities. The Special Process
business unit adds value to standard honeycomb by contouring and machining it
into complex shapes to meet customer specifications. Net sales of machined and
fabricated honeycomb parts for 1995, 1994 and 1993 are included in the above
sales totals for prepregs, adhesives and honeycomb.
STRUCTURES AND INTERIORS
Hexcel has acquired the structures and interiors businesses of the Ciba
Composites Business, which operate under the Heath Tecna name. The Structures
and Interiors business unit has worldwide responsibility for manufacturing and
marketing structures and interiors, and operates manufacturing facilities in
Brindisi, Italy; Bellingham, Washington; and Kent, Washington.
The structures operations of this business unit produce a wide variety of
lightweight, composite structures primarily for aerospace use. Structures
include such items as wing-to-body and flap track fairings, radomes, engine
cowls and inlet ducts, wing panels and other aircraft components. Structural
products are manufactured from advanced composite materials using such
manufacturing processes as resin transfer molding, autoclave processing, multi-
axis numerically controlled machining, press laminating, heat forming and other
composite manufacturing techniques. These products are utilized primarily by
commercial and military aircraft manufacturers. However, the Company has
recently begun to pursue several industrial applications for structural
products.
The interiors operations of this business unit design and produce
innovative, light weight, high-strength composite interior systems for aircraft.
Interior products include overhead stowage compartments and related interior
components such as lavatories, sidewalls and ceilings for commercial jet and
turboprop aircraft. These products are sold to airlines for replacement of
existing interiors. In addition, stowage bins are provided for new production
of Boeing 737 and 757 aircraft.
Hexcel did not sell structures or interiors in 1995, 1994 or 1993. The
Ciba Composites Business, which was acquired on February 29, 1996, had net sales
of structures and interiors totaling approximately $113 million in 1995.
PACIFIC RIM
The Pacific Rim business unit is responsible for business development in
the Asia-Pacific region. The business unit sells all Hexcel products within
this region through distributors and sales offices in Pleasanton, California;
Sydney, Australia; Taipei, Taiwan; and Tokyo, Japan. The Pacific Rim business
unit is also responsible for the DIC-Hexcel joint venture, which was formed in
1990 with Dainippon Ink & Chemicals, Inc. for the production and sale of Nomex
honeycomb, prepregs and decorative laminates for the Japanese market. The DIC-
Hexcel joint venture operates a manufacturing facility in Komatsu, Japan.
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Sales to the Asia-Pacific region, which are included in the above sales
totals for the Fabrics and Composite Materials business units, were less than
10% of Hexcel's total sales in 1995, 1994 and 1993.
INTEGRATED MANUFACTURING CAPABILITIES
The Fabrics business unit weaves the majority of the carbon, aramid and
fiberglass fabrics used in the manufacture of honeycomb and prepreg products by
the Composite Materials business unit. This integrated manufacturing capability
provides Hexcel with competitive advantages in developing woven reinforcements
to optimize the performance of certain of its Composite Materials products, and
a greater ability to control the cost, quality and delivery of its woven fabric
requirements.
The Special Process business unit utilizes honeycomb products manufactured
by the Composite Materials business unit in the production of machined and
fabricated honeycomb parts. Prior to the acquisition of the Ciba Composites
Business, Hexcel was a supplier of honeycomb and prepreg products to the Heath
Tecna structures and interiors businesses. Following the acquisition, the
Company expects to continue to leverage its ability to supply Composite
Materials to these businesses where it has, or can economically develop,
qualified products that can be used in the fabrication of finished structural or
interior components.
Management believes that the integrated manufacturing capabilities of
Hexcel, combined with the breadth of its product lines, strengthen the Company's
competitive position in the markets it serves and enhance its ability to develop
new product forms for new product applications.
RESEARCH AND TECHNOLOGY; PATENTS AND KNOW-HOW
Hexcel's Research and Technology function ("R&T") supports all of the
Company's business units worldwide. R&T maintains expertise in chemical
formulation and curatives, fabric forming and textile architectures, advanced
composites structures, process engineering, analysis and testing of composite
materials, computational design and prediction, and other scientific disciplines
related to the Company's worldwide business base. Additionally, R&T performs a
limited amount of contract research and development in the U.S. and Europe for
strategically important customers in the areas of ceramics, higher temperature
polymers, advanced textiles and composite structures manufacturing.
Each strategic business unit maintains research and engineering staffs and
facilities to support its business operations. Worldwide investment in research
and technology is directed and coordinated by a committee consisting of the R&T
managers within each of Hexcel's strategic business units. This committee is
responsible for ensuring that research and technology investments are targeted
towards maximizing the Company's long-term profitability and strengthening its
competitive position in the marketplace. Additionally, the committee oversees
the Company's portfolio of patents, technology licenses and other intellectual
property.
Hexcel spent $7.6 million for research and technology in 1995, $8.2 million
in 1994 and $8.0 million in 1993. These expenditures were expensed as incurred.
Following the acquisition of the Ciba Composites Business, the Company expects
to spend more than twice the 1995 level in 1996 on new product development,
process engineering and technical services for the strategic business units.
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Hexcel's products rely primarily on the Company's expertise in materials
science, engineering and polymer chemistry. Consistent with market demand, the
Company has been placing more emphasis on cost effective product design and
agile manufacturing in recent years. Towards this end, the Company has entered
into formal and informal partnerships, as well as licensing and teaming
arrangements, with several customers, suppliers, external agencies and
laboratories. Management believes that the Company possesses unique
capabilities to design, develop and manufacture composite materials and
structures. The Company owns and maintains in excess of 100 patents worldwide,
has licensed many key technologies, and has granted technology licenses and
patent rights to several third parties in connection with joint ventures and
joint development programs. It is the Company's policy to actively enforce its
proprietary rights. Management believes that the patents and know-how rights
currently owned or licensed by the Company are adequate for the conduct of its
business.
RAW MATERIALS AND PRODUCTION ACTIVITIES
Hexcel purchases most of the raw materials used in production. Several key
materials are available from relatively few sources, and in many cases the cost
of product qualification makes it impractical to develop multiple sources of
supply. The unavailability of these materials, which the Company does not
anticipate, could have a material adverse effect on operations. The Company
coordinates closely with key suppliers in an effort to avoid raw material
shortages.
Hexcel's production activities are generally based on a combination of
"make to order" and "make to forecast" production requirements. The Company's
Special Process and Structures and Interiors businesses are almost entirely
"make to order" operations.
MARKETS AND CUSTOMERS
Hexcel's materials are sold for a broad range of uses. The following tables
summarize net sales by market and by international operations for continuing
operations for the five years ended December 31.
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<CAPTION>
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1995 1994 1993 1992 1991
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<S> <C> <C> <C> <C> <C>
NET SALES BY MARKET:
Commercial aerospace 45% 47% 42% 46% 47%
Space and defense 11% 11% 18% 17% 19%
Recreation, general
industrial and other 44% 42% 40% 37% 34%
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100% 100% 100% 100% 100%
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INTERNATIONAL OPERATIONS:
International net sales(a) $ 170.7 $ 142.3 $ 125.4 $ 148.9 $ 153.2
Percentage of net sales 49% 45% 40% 42% 43%
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(a) Net sales of international subsidiaries and U.S. exports, in millions.
The Boeing Company and Boeing subcontractors accounted for approximately
21% of Hexcel's 1995 sales. The loss of all or a significant portion of this
business, which Hexcel does not anticipate, could
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have a material adverse effect on sales and earnings. Sales to various U.S.
government programs, including some of the sales to The Boeing Company and
Boeing subcontractors noted above, were approximately 10% of sales in 1995.
The Boeing Company and Boeing subcontractors accounted for approximately
18% of the 1995 sales of the Ciba Composites Business, which was acquired by
Hexcel on February 29, 1996.
COMMERCIAL AEROSPACE
Commercial aerospace activity fluctuates in relation to two principal
factors. First, the number of revenue passenger miles flown by the airlines
affects the size of the airline fleets and generally follows the level of
overall economic activity. A recent document, published by The Boeing Company,
projects that revenue passenger miles will increase an average of 5.5% per year
through the year 2000, with the Asian market having the highest growth rate.
The second factor, which is less sensitive to the general economy, is the
replacement and retrofit rates for existing aircraft. These rates, resulting
mainly from obsolescence, are determined in part by Federal Aviation
Administration regulations as well as public concern regarding aircraft age,
safety and noise. These rates may also be affected by the desire of the various
airlines for higher payloads and more fuel efficient aircraft, which in turn is
influenced by the price of fuel.
Commercial aircraft build rates, based on the estimated number of aircraft
delivered, declined by more than 30% from 1992 to 1994. Commercial aircraft
production appears to be gradually recovering from this period of decline. In
1995, the build rates for certain commercial aircraft began to increase, and
published industry data indicates that 1995 commercial aircraft orders were
double the 1994 level. Industry analysis indicates that the demand for aircraft
is expected to grow through the turn of the century. Hexcel's commercial
aerospace business volume is expected to increase in 1996 in part due to this
general industry improvement and in part due to expected build rate increases
for specific commercial aircraft. In addition to build rate increases, demands
for improved aircraft performance have led to increased use of certain honeycomb
and prepreg materials in aircraft, particularly in newer models. Despite this
preference for high performance products, the Company must continuously
demonstrate the cost benefits of its products for aerospace applications.
SPACE AND DEFENSE
Hexcel's sales to space and defense markets increased slightly to $37.3
million in 1995 from $34.9 million in 1994. Sales in 1993 were $55.3 million.
The 1995 growth was based primarily on increased volume associated with a few
contracts. The current international and domestic political climate indicates
that overall military spending will continue to decline in the foreseeable
future. As a result, the Company believes that its participation in space and
defense markets will shrink or remain relatively flat over the next several
years.
Contracts to supply materials for military and some commercial projects
contain provisions for termination at the convenience of the U.S. government or
the buyer. In the case of such a termination, Hexcel is entitled to recover
reasonable incurred cost plus a provision for profit on the incurred cost. The
Company is subject to U.S. government cost accounting standards, which are
applicable to companies with more than $25 million of government contract or
subcontract awards each year.
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RECREATION, GENERAL INDUSTRIAL AND OTHER MARKETS
Hexcel's sales to recreation, general industrial and other markets were
$153.9 million in 1995, or approximately 44% of total sales. This compares with
$131.4 million in 1994 and $123.9 million in 1993. The Company has focused its
participation in recreation and general industrial markets in areas where the
application of composites technology offers significant benefits to the end
user. As a result, the Company has focused on select opportunities where high
performance is the key product criterion. Accordingly, future opportunities and
growth depend primarily upon the success of the individual programs and
industries in which the Company has elected to participate. Key industry
sectors and applications in which the Company is involved include printed
circuit boards, ballistics protection, certain recreation products (primarily
athletic shoes, golf clubs, fishing rods, snow skis and snow boards), wind
energy and marine products, and automotive, truck and mass transit components.
The Company's participation in these markets is also dependent on the Company's
willingness to fund application development and the available capacity of
manufacturing facilities.
Further discussion of Hexcel's markets and customers is included in
"Management Discussion and Analysis" included in this Annual Report on Form 10-
K.
SALES AND MARKETING
A staff of salaried market managers, product managers and salespeople
market Hexcel products directly to customers worldwide. The Company also uses
independent distributors and manufacturer representatives for certain products,
markets and regions. The Company's sales and marketing capabilities have been
enhanced by the acquisition of the Ciba Composites Business, which possesses an
existing sales and distribution network with offices in 19 countries throughout
the world.
BACKLOG
The backlog of orders for aerospace materials to be filled within 12 months
was $88.3 million as of December 31, 1995, $65.6 million as of December 31, 1994
and $61.6 million as of December 31, 1993. A major portion of the backlog is
cancelable without penalty.
Orders for aerospace materials generally lag behind the award of orders for
new aircraft by a considerable period. Thus, the level of new aircraft
procurement normally will not have an impact on aerospace orders received by
Hexcel for about one to three years, depending on the nature of the product, the
manufacturer, and delivery schedules.
Backlog for non-aerospace materials amounted to $33.5 million at December
31, 1995, compared with $40.7 million at December 31, 1994 and $29.1 million at
December 31, 1993. Most of the non-aerospace backlog is expected to be filled
within six months. Markets for Hexcel products outside of the aerospace
industry are generally highly competitive requiring shorter lead times for
delivery or stock for immediate sale.
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COMPETITION
In the production and sale of its materials, Hexcel competes with numerous
U.S. and international companies on a worldwide basis. The broad markets for
the Company's products are highly competitive, and the Company has focused on
both specific markets and specialty products within markets to obtain market
share. In addition to competing directly with companies offering similar
products, Hexcel materials compete with substitute structural materials such as
structural foam, wood, metal, and concrete. Depending upon the material and
markets, relevant competitive factors include price, delivery, service, quality
and product performance. The acquisition of the Ciba Composites Business
enhances the Company's competitive position by broadening the Company's product
portfolio and strengthening the Company's position in certain geographic
regions.
ENVIRONMENTAL MATTERS
Environmental control regulations have not had a significant adverse effect
on overall operations. A discussion of environmental matters is included in
"Item 3. Legal Proceedings." and in Note 19 to the Consolidated Financial
Statements included in this Annual Report on Form 10-K.
EMPLOYEES
As of December 31, 1995, Hexcel employed 2,127 full-time employees in its
continuing operations, compared with 2,189 and 2,221 as of December 31, 1994 and
1993, respectively. Approximately 13% of these employees have union
affiliations. Management believes that labor relations in the Company have been
generally satisfactory.
As a result of the acquisition of the Ciba Composites Business on February
29, 1996, Hexcel added approximately 2,150 employees to its workforce, some of
whom have union affiliations.
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ITEM 2. PROPERTIES
Hexcel owns manufacturing and sales offices located throughout the United
States and in other countries as noted below. The corporate offices and
principal corporate support activities for the Company are located in leased
facilities in Pleasanton, California and Stamford, Connecticut. The central
research and technology laboratories are located in Dublin, California.
The following table lists the manufacturing facilities of Hexcel by
geographic location, approximate square footage, and principal products,
including the facilities acquired in connection with the acquisition of the Ciba
Composites Business. In the first quarter of 1996, the Company announced its
decision to close the acquired Anaheim facility. Following the closure of this
facility, and the completion of certain other consolidation activities and
capital projects required to combine the operations of the Company and the Ciba
Composites Business, management believes that the Company will possess
production capacity appropriate for the conduct of its business. The following
table does not include the manufacturing facilities operated by the Company's
joint ventures.
MANUFACTURING FACILITIES
Approximate
Facility Location Square Footage Principal Products
- ----------------- -------------- ------------------
United States:
Seguin, Texas 189,000 Reinforcement Fabrics
Anaheim, California 300,000 Prepregs; Honeycomb; Adhesives
Casa Grande, Arizona 320,000 Honeycomb; Special Process Honeycomb
Lancaster, Ohio 35,000 Prepregs
Livermore, California 141,000 Prepregs
Burlington, Washington 58,000 Special Process Honeycomb
Pottsville, Pennsylvania 104,000 Special Process Honeycomb
Bellingham, Washington 185,000 Interiors; Special Process Honeycomb
Kent, Washington 910,000 Interiors; Structures
International:
Les Avenieres, France 462,000 Reinforcement Fabrics; Prepregs
Lyon, France 230,000 Reinforcement Fabrics; Prepregs
Linz, Austria 187,000 Prepregs
Welkenraedt, Belgium 223,000 Prepregs; Honeycomb; Special Process
Honeycomb
Duxford, England 380,000 Prepregs; Honeycomb; Adhesives
Swindon, England 20,000 Special Process Honeycomb
Brindisi, Italy 110,000 Structures
Hexcel leases the Swindon, England plant and the land on which the
Burlington, Washington facility is located. The Company also leases portions of
the Casa Grande, Arizona; Bellingham, Washington; Kent, Washington; Les
Avenieres, France; and Welkenraedt, Belgium facilities.
The facilities of the Ciba Composites Business acquired on February 29,
1996 were: Anaheim, California; Bellingham, Washington; Kent, Washington; Lyon,
France; Duxford, England; and Brindisi, Italy. The acquisition of the Linz,
Austria facility did not occur on February 29, 1996, but is expected to
12
<PAGE>
be completed in connection with the Company's acquisition of an Austrian
subsidiary of Ciba in accordance with the Strategic Alliance Agreement. A
portion of the Linz, Austria facility is leased.
ITEM 3. LEGAL PROCEEDINGS.
On January 10, 1995, the Bankruptcy Court for the Northern District of
California, Oakland Division, confirmed the First Amended Plan of Reorganization
proposed by Hexcel and the Official Committee of Equity Security Holders dated
as of November 7, 1994. The effective date of the Reorganization Plan was
February 9, 1995. Further discussion of the Reorganization Plan and Hexcel's
emergence from bankruptcy reorganization proceedings is included in "Management
Discussion and Analysis" and in the Notes to the Consolidated Financial
Statements included in this Annual Report on Form 10-K.
In December 1988, Lockheed employees working with epoxy resins and
composites on classified programs filed suit against Lockheed and its suppliers
(including Hexcel) claiming various injuries as a result of exposure to these
products. Plaintiffs have filed for punitive damages which may be uninsured.
The first trial of the cases of 15 pilot plaintiffs resulted in a mistrial and a
retrial resulted in the entry of judgment in favor of the plaintiffs. The
Company did not participate in the trial due to the automatic stay resulting
from the Chapter 11 filing. Some of these claims were discharged as a result of
the plaintiffs' failure to file claims in Hexcel's Chapter 11 case. As to the
claims which have not been discharged, the Company has objected to them and
intends to proceed with those objections within the Bankruptcy Court.
Hexcel / MCI, a business unit divested in 1991, performed brazing services
in the manufacture of flexures under subcontract from Ormond which supplied the
flexures to Thiokol. The flexures are used to support a rocket motor housing in
a test stand during actual firing of the rocket. Several flexures cracked under
the dead weight of a rocket motor prior to actual test firing, and Thiokol has
sued Ormond and the Company for the costs of replacing all of the flexures
purchased ($0.9 million) (Thiokol Corporation v. Ormond, Hexcel, et al.). The
automatic stay in bankruptcy was lifted in April 1995 and the case was resumed
in the state court in Utah. Discovery is ongoing. There is no insurance
coverage available for an adverse court ruling or negotiated settlement.
Hexcel has been named as a potentially responsible party ("PRP") with
respect to several hazardous waste disposal sites that it does not own or
possess which are included on the Environmental Protection Agency's Superfund
National Priority List and/or various state equivalent lists. With respect to
its exposure relating to these sites, the Company believes its responsibility to
be de minimis. A total of 249 claims were filed in the Chapter 11 case with a
face value of over $6.7 billion. These claims were, for the most part,
duplicative as a result of the joint and several liability provisions of
applicable laws and have been categorized into claims involving 19 sites.
Claims involving 8 of the sites have been settled within the Chapter 11 case.
The Company has been named a PRP with respect to 6 sites for which no claims
were filed in the Chapter 11 case; as a result, the Company believes any further
claims to be barred. The balance of the sites and their related claims have
been passed through the bankruptcy. The Company's estimation of its exposure at
these sites is de minimis.
Also, pursuant to the New Jersey Environmental Responsibility and Clean-Up
Act, Hexcel signed an administrative consent order to pay for clean-up of a
manufacturing facility it formerly operated in Lodi, New Jersey. Hexcel has
reserved approximately $2.8 million to cover such remaining costs and believes
that actual costs should not exceed the amount which has been reserved. Fine
Organics Corporation, the current owner of the Lodi site and of Hexcel's former
chemicals business operated on that site, has asserted
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that the clean-up costs will be significantly in excess of that amount. The
ultimate cost of remediation at the Lodi site will depend on developing
circumstances.
Fine Organics Corporation filed a proof of claim and an adversary
proceeding in the Bankruptcy Court. The court has disallowed a significant
portion of the claim by denying Fine Organics claim for treble damages and
certain contingent claims. The remaining claims are for prior clean-up costs
incurred by Fine Organics and alleged contractual and tort damages relating to
the original sale of the business and site to Fine Organics totaling
approximately $3.2 million. This matter is proceeding in the Bankruptcy Court.
Hexcel, as a defense subcontractor, is subject to U.S. government audits
and reviews of negotiations, performance, cost classifications, accounting and
general practices relating to government contracts. The Defense Contract Audit
Agency ("DCAA") reviews cost accounting and business practices of government
contractors and subcontractors including the Company. The Company has been
engaged in discussions on a number of cost accounting issues which could result
in claims by the government. Some of these issues have already been resolved.
As part of these reviews, the DCAA has alleged that Hexcel improperly
included certain land lease costs in its indirect rates at the Chandler, Arizona
facility (the "Chandler Land Lease") and that, as a result, the Company's
subcontracts had been overpriced in an amount of approximately $1.0 million.
The Company has formally responded to the DCAA that it strongly disagrees with
these allegations. In February 1996, the Company received a letter from the
United States Attorney's Office, stating that it was considering filing an
action against the Company for violation of the civil False Claims Act ("FCA")
based upon the inclusion in the indirect rates of the Chandler Land Lease costs.
While the Company does not agree that there was any violation of the FCA, if the
U.S. government elects to pursue such an action and were it to prevail, it would
be entitled to three times the actual damages claimed plus penalties of between
$5,000 and $10,000 for each false claim; the number of alleged false claims
could be significant.
In 1993, Hexcel became aware of an aluminum honeycomb sandwich panel
delamination problem with panels produced by its wholly-owned Belgium
subsidiary, Hexcel S.A., and installed in rail cars in France and Spain.
Certain customers have alleged that Hexcel S.A. is responsible for the problem.
The Company and its insurer continue to investigate these claims. The Company
is also working with the customers to repair or replace panels when necessary,
with certain costs to be allocated upon determination of responsibility for the
delamination. While no lawsuit has been filed, two customers in France
requested that a court appoint experts to investigate the claims; to date, the
experts have not reported any conclusions. The Company's primary insurer for
this matter has agreed to fund legal representation and to provide coverage of
the claim to the extent of the policy limit for one year. The Company is
investigating additional insurance coverage. Even if additional insurance
coverage is not available, management believes that, based on available
information, it is unlikely that these claims will have a material adverse
effect on the consolidated financial position or results of operations of the
Company.
In November, 1995, Hexcel was notified that Livermore Development
Corporation ("LDC") was asserting a claim for damages arising from Hexcel's
recent notification of its intent to exercise its option to purchase certain
land in Livermore, California. LDC contends that the lease was a disguised
partnership or joint venture agreement between Hexcel and LDC to develop the
property for residential use. Hexcel disputes any such agreement and seeks to
enforce its option to purchase under a written agreement. The parties are in
ongoing negotiations to resolve this claim.
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In September, 1995, Ciba was named as a potentially responsible party with
respect to the removal of drums from a disposal site that it did not own or
possess, known as the Omega Chemical Corporation ("Omega Site"). The Omega Site
is a spent solvent recycling and treatment facility in Whittier, California.
Ciba has previously notified the EPA that it intends to comply with the EPA's
removal requirements and has paid its interim share of such removal costs to
date. This responsibility was assumed by the Company as a result of its
acquisition of the Ciba Composites Business, to the extent the Ciba waste
delivered to the Omega site was from the operations of the Ciba Composites
Business. This matter is under evaluation but is presently believed to be de
minimis.
In addition to the foregoing, Hexcel is from time to time involved in other
legal proceedings incidental to the conduct of its business. In addition, as a
result of the acquisition of the Ciba Composites Business, the Company assumed
certain liabilities, including certain legal proceedings incidental to the
conduct of the Ciba Composites Business.
Management believes, based on available information, that it is unlikely
these items, individually or in the aggregate, will have a material adverse
effect on the consolidated financial position or results of operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Hexcel Common stock is traded on the New York and Pacific Stock Exchanges.
The range of high and low sales prices of Hexcel common stock on the New York
Stock Exchange Composite Tape is contained in Note 24 to the Consolidated
Financial Statements included in this Annual Report on Form 10-K and is
incorporated herein by reference.
Hexcel did not declare or pay any dividends in 1995, 1994 or 1993, and the
payment of dividends is generally prohibited under the terms of certain of the
Company's credit agreements. On March 15, 1996, there were 2,253 holders of
record of Hexcel common stock.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by Item 6 is contained on page 32 of this Annual
Report on Form 10-K under "Selected Financial Data" and is incorporated herein
by reference.
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information required by Item 7 is contained on pages 33 to 40 of this
Annual Report on Form 10-K under "Management Discussion and Analysis" and is
incorporated herein by reference.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by Item 8 is contained on pages 44 to 81 of this
Form 10-K under "Consolidated Financial Statements and Supplementary Data" and
is incorporated herein by reference. The report of independent public
accountants for the years ended December 31, 1995, 1994 and 1993 is contained on
page 43 of this Annual Report on Form 10-K under "Independent Auditors' Report"
and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) Listed below are the directors of Hexcel as of March 21, 1996, the
positions with the Company held by them and a brief description of each
director's prior business experience.
DIRECTOR POSITIONS WITH HEXCEL AND
NAME AGE SINCE BUSINESS EXPERIENCE
- ---- --- ---- --------------------
John J. Lee 59 1993 Chairman of the Board of Directors since
February 1996; Chief Executive Officer
since January 1994; Chairman and Chief
Executive Officer from January 1994 to
February 1995; Chairman and Co-Chief
Executive Officer from July to December
1993; Director since May 1993. Mr. Lee
is chairman of the Nominating Committee
and a member of the Finance Committee of
the Board of Directors. 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 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
Corporation and various privately-held
corporations.
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DIRECTOR POSITIONS WITH HEXCEL AND
NAME AGE SINCE BUSINESS EXPERIENCE
- ---- --- ---- --------------------
Juergen Habermeier 54 1996 President, Chief Operating Officer, and
a member of the Board of Directors since
February 1996. Dr. Habermeier is a
member of the Technology Committee of
the Board of Directors. Dr. Habermeier
has served as the President of the Ciba
Composites Business and as a Vice
President of Ciba-Geigy Corporation
since 1989. Since 1994, Dr. Habermeier
has served on the Board of Directors of
RHR International. He is a member of
the Advisory Committee of the Polymer
Composites Laboratory of the University
of Washington.
John M. D. Cheesmond 46 1996 Director (Chairman of the Executive
Compensation Committee and a member of
the Finance Committee). Mr. Cheesmond
has served as Senior Vice President and
Head of Regional Finance and Control of
Ciba-Geigy Limited since 1994. From
1991 through 1993, Mr. Cheesmond served
as Vice President - Planning,
Information and Control at Ciba Vision
Corporation.
Marshall S. Geller 57 1994 Director (Chairman of the Audit
Committee and a member of the Executive
Compensation and Nominating Committees);
Co-Chairman of the Board of Directors
from February 1995 to February 1996.
Mr. Geller has 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 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
Ballantyne of Omaha, Inc., Dycam, Inc.,
Players International, Value Vision
International, Inc., Styles on Video,
Inc., and various privately-held
corporations and charitable
organizations.
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DIRECTOR POSITIONS WITH HEXCEL AND
NAME AGE SINCE BUSINESS EXPERIENCE
- ---- --- ---- --------------------
Peter A. Langerman 40 1995 Director (Chairman of the Finance
Committee and a member of the Audit and
Executive Compensation Committees); Co-
Chairman of the Board of Directors from
February 1995 to February 1996. Mr.
Langerman is 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 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.
Stanley Sherman 57 1996 Director (Member of the Finance and
Executive Compensation Committees). Mr.
Sherman has served as a director and
Vice President - Finance and Information
Services of Ciba-Geigy Corporation since
1991. From 1986 through 1991, Mr.
Sherman served as Vice President -
Corporate Planning of Ciba-Geigy
Corporation. Mr. Sherman is currently a
member of the Finance Committee of Ciba-
Geigy Corporation.
George S. Springer 62 1993 Director (Chairman of the Technology
Committee). Dr. Springer is Professor
and Chairman of the Department of
Aeronautics and Astronautics and, by
courtesy, Professor of Mechanical
Engineering and Professor of Civil
Engineering, at Stanford University.
Dr. Springer joined Stanford
University's faculty in 1983.
Frederick W. Stanske 37 1995 Director from August 1994 to February
1995, reappointed as a director in April
1995 (Member of the Audit Committee).
Mr. Stanske is Vice President of Fisher
Investments, Inc., an investment
advisory firm.
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DIRECTOR POSITIONS WITH HEXCEL AND
NAME AGE SINCE BUSINESS EXPERIENCE
- ---- --- ---- --------------------
Joseph T. Sullivan 55 1996 Director (Member of the Nominating
Committee). Dr. Sullivan has served as
a director and Senior Vice President of
Ciba-Geigy Corporation since 1986. Dr.
Sullivan is currently a member of the
Corporate Governance and Finance
Committees of Ciba-Geigy Corporation.
Hermann Vodicka 53 1996 Director (Member of the Nominating and
Technology Committees). Mr. Vodicka has
served as President of the Polymers
Division and a member of the Executive
Committee of Ciba-Geigy Limited since
1993. Effective April 25, 1996, Mr.
Vodicka will become Chairman of the
Executive Committee of Ciba-Geigy
Limited. Mr. Vodicka 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-Geigy Limited. From
1988 through 1993, Mr. Vodicka was
President and Chief Executive Officer of
METTLER-TOLEDO.
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(b) Listed below are the executive officers of Hexcel as of March 21, 1996,
the positions held by them and a brief description of their business experience.
DIRECTOR POSITIONS WITH HEXCEL AND
NAME AGE SINCE BUSINESS EXPERIENCE
- ---- --- ---- --------------------
John J. Lee 59 1993 See Item 10(a) above for a brief
description of Mr. Lee's positions with
Hexcel and his business experience.
Juergen Habermeier 54 1996 See Item 10(a) above for a brief
description of Dr. Habermeier's
positions with Hexcel and his business
experience.
Stephen C. Forsyth 40 1994 Senior Vice President of Finance and
Administration since February 1996; Vice
President of International Operations
from October 1994 to February 1996;
General Manager of Resins Business and
Export Marketing from 1989 to 1994;
other general management positions from
1980 to 1989. Mr. Forsyth joined Hexcel
in 1980.
Rodney P. Jenks, Jr. 45 1994 Vice President, General Counsel and
Secretary since March 1994. Prior to
joining Hexcel in 1994, Mr. Jenks was a
partner in the law firm of Wendel,
Rosen, Black & Dean, where he continues
to serve as counsel.
David M. Wong 51 1996 Vice President of Corporate Affairs
since February 1996; Director of Special
Projects from July 1993 to February
1996; Corporate Controller and Chief
Accounting Officer from 1983 to 1993;
other general management positions from
1979 to 1993. Mr. Wong joined Hexcel in
1979.
William P. Meehan 60 1993 Vice President of Finance and Chief
Financial Officer since September 1993,
and Treasurer 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 of Finance and Chief
Financial Officer of Hadco Corporation.
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DIRECTOR POSITIONS WITH HEXCEL AND
NAME AGE SINCE BUSINESS EXPERIENCE
- ---- --- ---- --------------------
Wayne C. Pensky 40 1993 Corporate Controller and Chief
Accounting Officer since July 1993.
Prior to joining Hexcel in 1993, Mr.
Pensky was a partner at Arthur Andersen
& Co., where he was employed from 1979.
Michael Carpenter 39 1996 Vice President of Structures and
Interiors Business Unit, responsible
for the structures business, since
February 1996. Mr. Carpenter served as
the Vice President of Structures in
the Heath Tecna division of the Ciba
Composites Business prior the
acquisition. Mr. Carpenter has held
various technical and managerial
positions with Heath Tecna since 1983.
William Hunt 53 1996 President of the European Operations of
the Composite Materials Business Unit
since February 1996. Mr. Hunt served as
the President of the EuroMaterials unit
of the Ciba Composites Business from
1991 to February 1996, and as the
Managing Director of Ciba-Geigy
Plastics from 1990 to 1991. Prior to
joining Ciba in 1990, Mr. Hunt held
various other technical and managerial
positions, including the position of
Managing Director of Illford Limited
(Photographic) Co.
Claude Genin 60 1996 President of the Fabrics Business Unit
since February 1996; Managing Director
of Hexcel Lyon from 1977 to 1996.
Hexcel Lyon was acquired by Hexcel in
1985.
James A. Koshak 52 1996 President of the U.S. Operations of the
Composite Materials Business Unit since
February 1996. Mr. Koshak served as
Vice President of the Ciba Composites
Business and General Manager of the U.S.
Materials unit from 1993 to February
1996, and as Vice President of the
Polymers Division and General Manager of
Formulated Systems from 1988 to 1993.
Mr. Koshak held various other technical
and managerial positions with Ciba from
1974 to 1988.
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DIRECTOR POSITIONS WITH HEXCEL AND
NAME AGE SINCE BUSINESS EXPERIENCE
- ---- --- ---- --------------------
Thomas J. Lahey 55 1991 President of the Pacific Rim
Business Unit since February 1996;
Vice President of Worldwide Sales
from April 1993 to February 1996; Vice
President of Advanced Composites from
1992 to 1993; General Manager of
Advanced Composites from 1991 to 1992;
General Manager of Advanced Products
from 1989 to 1991. Prior to joining
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.
Robert A. Petrisko 41 1993 Vice President of Research and
Technology since September 1993; Manager
of the Signature Technology Group at the
Chandler facility and Director of
Aerospace Technology from 1989 to 1993.
Dr. Petrisko joined Hexcel in 1989,
after serving as a Research Specialist
with Dow Corning Corporation from 1985
to 1989.
Gary L. Sandercock 54 1989 President of the Special Process
Business Unit since February 1996;
Vice President of Manufacturing from
April 1993 to February 1996;
Vice President of Reinforcement Fabrics
from 1989 to 1993; General Manager of
the Trevarno Division from 1985 to 1989;
other manufacturing and general
management positions from 1967 to 1985.
Mr. Sandercock joined Hexcel in 1967.
David Tanonis 39 1996 Vice President of the Structures and
Interiors Business Unit, responsible
for the interiors business, since
February 1996. Mr. Tanonis served as
the Vice President of Interiors in the
Heath Tecna division of the Ciba
Composites Business prior to the
acquisition. Mr. Tanonis has held
various technical and managerial
positions with Heath Tecna since he
joined the division in 1987. Mr.
Tanonis held various management
positions with Polymer Engineering, Inc.
from 1978 to 1987.
(c) There are no family relationships among any of Hexcel's directors or
executive officers.
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ITEM 11. EXECUTIVE COMPENSATION.
The information required in Item 11 will be contained in Hexcel's
definitive Proxy Statement for the 1996 Annual Meeting of Stockholders. Such
information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required in Item 12 will be contained in Hexcel's
definitive Proxy Statement for the 1996 Annual Meeting of Stockholders. Such
information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required in Item 13 will be contained in Hexcel's
definitive Proxy Statement for the 1996 Annual Meeting of Stockholders. Such
information is incorporated herein by reference.
24
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
a. FINANCIAL STATEMENTS
The consolidated financial statements of the Company, notes thereto, and
independent auditors' report are listed on page 41 of this Annual Report on Form
10-K and are incorporated herein by reference.
b. REPORTS ON FORM 8-K
Current Report on Form 8-K dated as of October 13, 1995, relating to the
proposed acquisition of the Ciba Composites Business.
Current Report on Form 8-K dated as of March 15, 1996, relating to the
consummation of the acquisition of the Ciba Composites Business.
Current Report on Form 8-K/A dated as of April 1, 1996, relating to the
consummation of the acquisition of the Ciba Composites Business.
c. EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1 Strategic Alliance Agreement dated as of September 29, 1995 among
the Company, Ciba and CGC (filed as Exhibit 10.1 to the Company's
Current Report on Form 8-K dated as of October 13, 1995 and
incorporated herein by reference).
2.1(a) Amendment dated as of December 12, 1995 to the Strategic Alliance
Agreement among the Company, Ciba and CGC (filed as Exhibit
2.1(a) to the Company's Current Report on Form 8-K dated as of
March 15, 1996 and incorporated herein by reference).
2.1(b) Letter Agreement dated as of February 28, 1996 among the Company,
Ciba and CGC (filed as Exhibit 2.1(b) to the Company's Current
Report on Form 8-K dated as of March 15, 1996 and incorporated
herein by reference).
2.1(c) Distribution Agreement dated as of February 29, 1996 among the
Company, Brochier S.A., Composite Materials Limited, Salver
S.r.l. and Ciba (filed as Exhibit 2.1(c) to the Company's Current
Report on Form 8-K dated March 15, 1996 and incorporated herein
by reference).
2.2 First Amended Plan of Reorganization Proposed by the Debtor and
the Official Committee of Equity Security Holders, dated as of
November 7, 1994 (filed as Exhibit 2 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended October 2, 1994
and incorporated herein by reference).
2.2(a) Order Confirming First Amended Plan of Reorganization Proposed by
the Debtor and the Official Committee of Equity Security Holders,
entered on January 12, 1995 by the
25
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
United States Bankruptcy Court for the Northern District of
California (filed as Exhibit 2.1 to the Company's Current Report
on Form 8-K dated as of January 23, 1995 and incorporated herein
by reference).
2.2(b) Subscription Rights Plan (filed as Exhibit 4.1 to the Company's
Current Report on Form 8-K dated as of February 9, 1995 and
incorporated herein by reference).
3.1 Certificate of Incorporation of the Company dated as of February
9, 1995 (filed as Exhibit 3.1 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994 and
incorporated herein by reference).
3.1(a) Amendment dated as of February 21, 1996 to the Certificate of
Incorporation of the Company (filed as Exhibit 3.1(a) to the
Company's Registration Statement on Form S-8, Registration No.
333-1225, and incorporated herein by reference).
3.2 Bylaws of the Company dated as of February 9, 1995 (filed as
Exhibit 3.2 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 and incorporated herein by
reference).
3.2(a) Amendment dated as of February 29, 1996 to the Bylaws of the
Company.
4.1 Certificate of Incorporation of the Company dated as of February
9, 1995 (see Exhibit 3.1 above).
4.1(a) Amendment dated as of February 29, 1996 to the Certificate of
Incorporation of the Company (see Exhibit 3.1(a) above).
4.2 Bylaws of the Company dated as of February 9, 1995 (see Exhibit
3.2 above).
4.2(a) Amendment dated as of February 29, 1996 to the Bylaws of the
Company (see Exhibit 3.2(a) above).
4.3 Indenture dated as of October 1, 1988 between the Company and the
Bank of California, N.A., as trustee (filed as Exhibit 4.10 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993 and incorporated herein by reference).
4.4 Indenture dated as of February 29, 1996 between the Company and
First Trust of California, National Association, as trustee
(filed as Exhibit 4.1 to the Company's Current Report on Form 8-K
dated as of March 15, 1996 and incorporated herein by reference).
10.1 Credit Agreement dated as of February 8, 1995 among the Company,
Citicorp USA, Inc., Heller Financial, Inc., Transamerica Business
Credit Corporation and Citibank N.A. (filed as Exhibit 99.1 to
the Company's Current Report on Form 8-K dated as of February 22,
1995 and incorporated herein by reference).
26
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.2 Credit Agreement dated as of February 29, 1996 among the Company
and certain subsidiaries of the Company, as borrowers, the
lenders and issuing banks party thereto, Citibank, N.A., as U.S.
administrative agent, Citibank International plc, as European
administrative agent and Credit Suisse, as syndication agent
(filed as Exhibit 99.1 to the Company's Current Report on Form 8-
K dated as of March 15, 1996 and incorporated herein by
reference).
10.3 Restated and Amended Reimbursement Agreement dated as of February
1, 1995 between the Company and Banque Nationale de Paris (filed
as Exhibit 99.2 to the Company's Current Report on Form 8-K dated
as of February 22, 1995 and incorporated herein by reference).
10.3(a) Second Restated and Amended Reimbursement Agreement dated as of
February 29, 1996 between the Company and Banque Nationale de
Paris.
10.4 Asset Purchase Agreement dated as of November 3, 1994 between the
Company and Northrop Grumman Corporation (filed as Exhibit 10 to
the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended October 2, 1994 and incorporated herein by
reference).
10.5 Hexcel Corporation Incentive Stock Plan (filed as Exhibit 4.3 to
the Company's Registration Statement on Form S-8, Registration
No. 333-1225, and incorporated herein by reference).
10.6 Long-Term Incentive Plan (filed as Exhibit 99.2 to the Company's
Current Report on Form 8-K dated as of January 23, 1995 and
incorporated herein by reference).
10.7 1988 Management Stock Program (filed as Exhibit 28.1 to Post-
Effective Amendment No. 1 to Form S-8, Registration No. 33-17025,
and incorporated herein by reference).
10.7(a) Amendments to 1988 Management Stock Program (filed as Exhibit
28.2 to the Company's Registration Statement on Form S-8,
Registration No. 33-28445, and incorporated herein by reference).
10.8 Form of 1988 Restricted Stock Agreement (filed as Exhibit 28.14
to Post-Effective Amendment No. 1 to the Company's Registration
Statement on Form S-8, Registration No. 33-17025, and
incorporated herein by reference).
10.9 Form of 1988 Discounted Stock Option Agreement (filed as Exhibit
28.16 to Post-Effective Amendment No. 1 to the Company's
Registration Statement on Form S-8, Registration No. 33-17025,
and incorporated herein by reference).
10.10 Form of 1988 Officers' Non-Qualified Stock Option Agreement
(filed as Exhibit 28.9 to Post-Effective Amendment No. 1 to the
Company's Registration Statement on Form S-8, Registration No.
33-17025, and incorporated herein by reference).
27
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.11 Form of Executive Deferred Compensation Agreement (filed as
Exhibit 10.10.B to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993 and incorporated herein
by reference).
10.12 Directors' Retirement Plan (filed as Exhibit 11.14 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992 and incorporated herein by reference).
10.13 Form of Option Agreement (Directors).
10.14 Employment Agreement dated as of February 29, 1996 between the
Company and John J. Lee.
10.14(a) Employee Option Agreement dated as of February 29, 1996 between
the Company and John J. Lee.
10.14(b) Bankruptcy Court Option Agreement dated as of February 29, 1996
between the Company and John J. Lee.
10.14(c) Performance Accelerated Restricted Stock Unit Agreement dated as
of February 29, 1996 between the Company and John J. Lee.
10.14(d) Short-Term Option Agreement dated as of February 29, 1996 between
the Company and John J. Lee.
10.14(e) Form of Reload Option Agreement between the Company
and John J. Lee.
10.15 Interim Employment Agreement and Consulting Agreement between the
Company and John J. Lee (filed as Exhibit 10.4.E to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1994 and incorporated herein by reference).
10.16 Interim Employment Agreement between the Company and William P.
Meehan (filed as Exhibit 10.4.G to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994 and
incorporated herein by reference).
28
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.17 Agreement between the Company and Gary L. Sandercock (filed as
Exhibit 10.4.I to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994 and incorporated herein
by reference).
10.18 Agreement between the Company and Thomas J. Lahey (filed as
Exhibit 10.4.J to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994 and incorporated herein
by reference).
10.19 Memorandum Agreement dated as of January 31, 1996 between the
Company and Rodney P. Jenks, Jr.
10.20 Letter Agreement dated as of February 1, 1995 between the Company
and UniRock Management Corporation (filed as Exhibit 10.5 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 and incorporated herein by reference).
10.20(a) Letter Agreement dated as of October 27, 1995 between the Company
and UniRock Management Corporation.
10.21 Governance Agreement dated as of February 29, 1996 between the
Company and Ciba.
10.22 Registration Rights Agreement dated as of February 29, 1996
between the Company and Ciba.
10.23 Agreement Governing United States Employment Matters dated as of
September 29, 1995 between the Company and CGC (filed as Exhibit
D to Exhibit 10.1 to the Company's Current Report on Form 8-K
dated as of October 13, 1995 and incorporated herein by
reference).
10.23(a) Amendment dated as of November 22, 1995 to the Agreement
Governing United States Employment Matters between the Company
and CGC.
10.24 Employment Matters Agreement dated as of February 29, 1996 among
Ciba-Geigy plc, Composite Materials Limited and the Company.
11 Statement Regarding Computation of Per Share Earnings.
21 Subsidiaries of Registrant.
23 Independent Auditors' Consent -- Deloitte & Touche LLP
27 Financial Data Schedule (electronic filing only).
29
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
PLEASANTON, STATE OF CALIFORNIA.
HEXCEL CORPORATION
MARCH 21, 1996 By: /s/ JOHN J. LEE
--------------------------------------
John J. Lee, Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JOHN J. LEE Chairman of the March 21, 1996
- ----------------------- Board of Directors and
(John J. Lee) Chief Executive Officer
(PRINCIPAL EXECUTIVE OFFICER)
/s/ WILLIAM P. MEEHAN Vice President and Chief March 21, 1996
- ----------------------- Financial Officer
(William P. Meehan) (PRINCIPAL FINANCIAL OFFICER)
/s/ WAYNE C. PENSKY Corporate Controller March 21, 1996
- ----------------------- (PRINCIPAL ACCOUNTING OFFICER)
(Wayne C. Pensky)
/s/ JOHN M. D. CHEESMOND Director March 21, 1996
- ------------------------
(John M. D. Cheesmond)
/s/ MARSHALL S. GELLER Director March 21, 1996
- -----------------------
(Marshall S. Geller)
/s/ JUERGEN HABERMEIER Director, President and March 21, 1996
- ----------------------- Chief Operating Officer
(Juergen Habermeier)
/s/ PETER A. LANGERMAN Director March 21, 1996
- -----------------------
(Peter A. Langerman)
30
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ STANLEY SHERMAN Director March 21, 1996
- -----------------------
(Stanley Sherman)
/s/ GEORGE S. SPRINGER Director March 21, 1996
- -----------------------
(George S. Springer)
/s/ FREDERICK W. STANSKE Director March 21, 1996
- ------------------------
(Frederick W. Stanske)
/s/ JOSEPH T. SULLIVAN Director March 21, 1996
- -----------------------
(Joseph T. Sullivan)
Director March 21, 1996
- -----------------------
(Hermann Vodicka)
31
<PAGE>
SELECTED FINANCIAL DATA
The following table summarizes selected financial data for continuing
operations as of, and for, the five years ended December 31.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- ---------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $ 350,238 $ 313,795 $ 310,635 $ 352,987 $ 355,601
Cost of sales (283,148) (265,367) (263,090) (285,088) (284,875)
-----------------------------------------------------------------------
Gross margin 67,090 48,428 47,545 67,899 70,726
Marketing, general &
administrative expenses (49,324) (45,785) (52,510) (62,053) (54,797)
Other income (expenses), net 791 4,861 (12,780) 2,992 --
Restructuring expenses -- -- (46,600) (23,000) --
-----------------------------------------------------------------------
Operating income (loss) 18,557 7,504 (64,345) (14,162) 15,929
Interest expense (8,682) (11,846) (8,862) (8,196) (10,870)
Bankruptcy reorganization
expenses (3,361) (20,152) (641) -- --
-----------------------------------------------------------------------
Income (loss) from
continuing operations
before income taxes 6,514 (24,494) (73,848) (22,358) 5,059
Benefit (provision) for
income taxes (3,313) (3,586) (6,024) 6,375 54
-----------------------------------------------------------------------
Income (loss) from
continuing operations $ 3,201 $ (28,080) $ (79,872) $ (15,983) $ 5,113
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Income (loss) per share
from continuing
operations(a) $ 0.20 $ (3.84) $ (10.89) $ (2.20) $ 0.72
-----------------------------------------------------------------------
-----------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
Current assets $ 128,055 $ 148,352 $ 134,710 $ 160,001 $ 213,699
Non-current assets 102,547 95,105 128,532 150,659 146,275
-----------------------------------------------------------------------
Total assets $ 230,602 $ 243,457 $ 263,242 $ 310,660 $ 359,974
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Current liabilities $ 66,485 $ 171,307 $ 72,965 $ 79,305 $ 78,545
Long-term liabilities 115,743 78,035 169,524 125,206 137,106
Shareholders' equity
(deficit) 48,374 (5,885) 20,753 106,149 144,323
-----------------------------------------------------------------------
Total liabilities and
shareholders' equity
(deficit) $ 230,602 $ 243,457 $ 263,242 $ 310,660 $ 359,974
-----------------------------------------------------------------------
-----------------------------------------------------------------------
OTHER DATA:
Cash dividends per share -- -- -- $ 0.44 $ 0.44
Shares outstanding at
year-end 18,091 7,301 7,310 7,296 7,158
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(a) Primary and fully diluted net income (loss) per share for all five years
were the same because the fully diluted computation was antidilutive.
32
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
ACQUISITION OF THE CIBA COMPOSITES BUSINESS
Hexcel acquired the Ciba Composites Business of Ciba-Geigy Limited and
Ciba-Geigy Corporation on February 29, 1996. The Ciba Composites Business is
engaged in the manufacture and marketing of composite materials, parts and
structures for aerospace, recreation and general industrial markets. Product
lines include fabrics, prepregs, adhesives, honeycomb core, sandwich panels and
fabricated components, as well as structures and interiors primarily for the
commercial and military aerospace markets.
The acquisition of the Ciba Composites Business was consummated pursuant to
the Strategic Alliance Agreement. Under the Strategic Alliance Agreement,
Hexcel acquired the assets (including the capital stock of certain of Ciba's
non-U.S. subsidiaries) and assumed the liabilities of the Ciba Composites
Business other than certain excluded assets and liabilities in exchange for: (a)
approximately 18.0 million newly issued shares of Hexcel common stock; (b) $25.0
million in cash; and (c) undertakings to deliver to Ciba and/or one or more of
its subsidiaries, following completion of certain post-closing adjustment
procedures contemplated by the Strategic Alliance Agreement, the Senior
Subordinated Notes and the Senior Demand Notes. Pursuant to the Strategic
Alliance Agreement, certain assets of the Ciba Composites Business and certain
assets of Ciba affiliates that will continue to act as distributors for the Ciba
Composites Business will be acquired by the Company from time to time prior to
February 28, 1997.
In connection with the acquisition of the Ciba Composites Business, the
Company obtained the Senior Secured Credit Facility to: (a) fund the cash
component of the purchase price; (b) refinance outstanding indebtedness under
certain U.S. and European credit facilities; and (c) provide for the ongoing
working capital and other financing requirements of the Company, including
consolidation activities, on a worldwide basis.
Further discussion of the acquisition of the Ciba Composites Business and
the Senior Secured Credit Facility is included in "Financial Condition and
Liquidity" below, as well as in "Item 1. Business." and in the Notes to the
Consolidated Financial Statements included in this Annual Report on Form 10-K.
Hexcel acquired the Ciba Composites Business on February 29, 1996.
Accordingly, the Company's results of operations for 1995, 1994 and 1993 do not
include the results of the Ciba Composites Business, and unless the context
otherwise indicates, the following discussion and analysis relates solely to the
operations of the Company prior to the acquisition of the Ciba Composites
Business.
BANKRUPTCY REORGANIZATION
On January 12, 1995, the Bankruptcy Court entered an order dated January
10, 1995 confirming the Reorganization Plan proposed by Hexcel and the Equity
Committee. On February 9, 1995, the Reorganization Plan became effective and
Hexcel emerged from the bankruptcy reorganization proceedings which had begun on
December 6, 1993, when Hexcel filed a voluntary petition for relief under the
provisions of Chapter 11 of the federal bankruptcy laws.
33
<PAGE>
The Reorganization Plan which became effective on February 9, 1995 provided
for: (a) the replacement of a debtor-in-possession credit facility with a new
revolving credit facility (the "Revolving Credit Facility") of up to $45.0
million; (b) the creation of an amended reimbursement agreement with respect to
the letters of credit in support of certain industrial development revenue
bonds; (c) the completion of the first closing under a standby purchase
commitment whereby Mutual Series Fund Inc. ("Mutual Series") purchased
approximately 1.9 million shares of new common stock for $9.0 million and loaned
Hexcel $41.0 million as an advance against the proceeds of a subscription rights
offering for additional shares of new common stock; and (d) the reinstatement or
payment in full, with interest, of all allowed claims, including prepetition
accounts payable and notes payable.
The Revolving Credit Facility was replaced by the Senior Secured Credit
Facility on February 29, 1996.
The subscription rights offering concluded on March 27, 1995, with the
issuance of an additional 7.2 million shares of new common stock. The resulting
cash proceeds of $33.1 million were used to reduce the outstanding balance of
the loan from Mutual Series. The second closing under the standby purchase
agreement was completed on April 6, 1995, with the issuance of an additional 1.6
million shares of new common stock to Mutual Series, the issuance of an
additional 0.1 million shares of new common stock to John J. Lee, Hexcel's Chief
Executive Officer, and the retirement of the remaining balance of the Mutual
Series loan. Following the second closing under the standby purchase agreement
on April 6, 1995, the Company had a total of 18.1 million shares of common stock
issued and outstanding.
On February 9, 1995, Hexcel paid $78.1 million in prepetition claims and
interest, and reinstated another $60.6 million in prepetition liabilities. The
payment of claims and interest on February 9, 1995 was financed with: (a) cash
proceeds of $26.7 million received in the first quarter of 1995 from the sale of
the Company's Chandler, Arizona manufacturing facility and certain related
assets and technology; (b) cash proceeds of $2.6 million received in the first
quarter of 1995 from the sale of the Company's European resins business; (c) the
$50.0 million in cash received from Mutual Series in connection with the standby
purchase agreement; and (d) borrowings under the Revolving Credit Facility.
Further discussion of the Reorganization Plan, the Chandler and European
resins transactions, and Hexcel's emergence from bankruptcy reorganization
proceedings is included in the Notes to the Consolidated Financial Statements
included in this Annual Report on Form 10-K.
RESULTS OF OPERATIONS
Hexcel generated income from continuing operations of $3.2 million in 1995,
or $0.20 per share. This compares with losses from continuing operations of
$28.1 million in 1994 and $79.9 million in 1993. The Company earned net income
of $2.7 million in 1995, or $0.17 per share. The Company incurred net losses of
$30.0 million and $86.0 million in 1994 and 1993, respectively.
Operating results for 1995 include other income of $0.8 million and
bankruptcy reorganization expenses of $3.4 million. Other income relates
primarily to additional monies received in connection with the sale of the
Chandler, Arizona manufacturing facility and certain related assets and
technology in 1994.
Operating results for 1994 include other income of $4.9 million, which is
largely comprised of $15.9 million in income related to the Chandler
transaction, less an $8.0 million provision to reflect the
34
<PAGE>
estimated cost of restructuring a joint venture and a $2.9 million provision for
bankruptcy claim adjustments. The 1994 loss from continuing operations also
includes bankruptcy reorganization expenses of $20.2 million, as well as
interest expenses for bankruptcy claims and exit financing of $2.5 million and a
provision for the settlement of various tax audits of $1.8 million.
Operating results for 1993 include restructuring charges of $46.6 million
for a major expansion of the restructuring program begun in December 1992. The
1993 loss from continuing operations also includes other expenses of $12.8
million for the write-down of certain assets and increases in reserves for
warranties and environmental matters on property previously owned. The
impairment of assets was due primarily to the bankruptcy proceedings, changes in
business conditions, and depressed real estate prices on property held for sale.
In addition, Hexcel recorded a $10.9 million provision in 1993 to reflect the
adverse impact of bankruptcy proceedings and substantial operating losses on the
potential realization of deferred income tax benefits.
Losses from discontinued operations totaled $0.5 million, $1.9 million and
$10.6 million in 1995, 1994 and 1993, respectively. These losses reflect the
results of the discontinued resins business, including provisions to write-down
the net assets of this business by $2.8 million in 1994 and $6.0 million in
1993. The divestiture of the resins business was completed in October 1995.
The 1993 losses from discontinued operations also reflect the results of the
discontinued fine chemicals business, including a provision to write-down the
net assets of this business by $2.8 million in 1993. The divestiture of the
fine chemicals business was completed in January 1994.
In 1993, the Company recorded a one-time, cumulative benefit of $4.5
million from the adoption of a new accounting standard for income taxes.
SALES
Net sales for 1995 totaled $350.2 million, compared with 1994 net sales of
$313.8 million and 1993 net sales of $310.6 million. The improvement in 1995
sales over 1994 and 1993 levels is attributable to increased sales of prepregs
and reinforcement fabrics, partially offset by decreased sales of honeycomb.
Sales of prepregs to commercial aerospace and general industrial markets were
higher, as were sales of reinforcement fabrics for use in the recreation,
electrical (printed circuit boards) and ballistics industries. In addition,
Hexcel benefited from a significant military contract for prepregs, and improved
sales of honeycomb to the commercial aerospace market. The overall decrease in
honeycomb sales is attributable to the divestiture of the Chandler facility and
the related reduction in military aerospace sales. The Chandler facility and
certain related assets and technology were sold to the Northrop Grumman
Corporation in December 1994.
The increase in sales from 1994 to 1995 reflects a modest increase in
demand for certain products used in the commercial aerospace market, further
penetration of selected recreation and general industrial markets, and continued
improvement in the overall economic environment in both the U.S. and Europe.
Changes in currency exchange rates were also a factor in the increase. During
1995, the U.S. dollar declined against most of the major European currencies,
including the Belgian and French francs; accordingly, sales from Hexcel's
primary international subsidiaries were increased when translated into U.S.
dollars. Due to the highly competitive nature of most of the markets in which
the Company competes, product price changes were not a significant factor in
1995 sales growth.
U.S. sales were $179.5 million in 1995, compared with $171.5 million in
1994 and $185.2 million in 1993. The 1995 increase is primarily attributable to
a significant military contract for prepregs and
35
<PAGE>
improved sales of reinforcement fabrics to general industrial and other markets.
The reduction in honeycomb sales attributable to the divestiture of the Chandler
facility was partially offset by increased sales of honeycomb to commercial
aerospace and other markets. The 1994 decrease in U.S. sales was mainly due to
reduced sales of prepregs and honeycomb to commercial and military aerospace
markets, partially negated by improved sales of prepregs to general industrial
and other markets.
International sales were $170.7 million in 1995, compared with $142.3
million in 1994 and $125.4 million in 1993. The 1995 and 1994 increases reflect
higher sales of prepregs and reinforcement fabrics to recreation, electrical
(printed circuit boards) and other industries, as well as increased sales of
prepregs to certain European aerospace customers. A portion of each increase is
also attributable to changes in currency exchange rates. The U.S. dollar
declined relative to the Belgian and French francs in 1994 as well as in 1995.
COMMERCIAL AEROSPACE SALES
Worldwide sales were $159.0 million in 1995, compared with $147.5 million
in 1994 and $131.4 million in 1993. Sales of prepregs and honeycomb to the
commercial aerospace market increased in 1995 as a result of modest improvements
in the build rates for certain commercial aircraft, as well as increased sales
of selected products. In addition, Hexcel benefited from the improved economic
environment in Europe, which also contributed to the 1994 sales increase.
Nonetheless, while sales of individual products such as graphite honeycomb and
certain prepreg products have increased during the past two years in response to
the production of new wide-bodied aircraft, the Company continues to face
intense competition for many of the products it sells to the commercial
aerospace market. As a result, there is significant price pressure on several
of these products.
SPACE AND DEFENSE SALES
Worldwide sales were $37.3 million in 1995, compared with $34.9 million in
1994 and $55.3 million in 1993. The slight increase in 1995 sales is
attributable to a significant military contract for prepregs, partially negated
by a decline in honeycomb sales. The decline in honeycomb sales reflects the
divestiture of the Chandler facility and the related reduction in military
aerospace sales.
The reduction in space and defense sales from 1993 to 1994 continued a
trend which began in 1988, when sales to this market exceeded $100 million, and
reflects Hexcel's declining involvement in a major military aerospace program as
well as the general decline in U.S. military spending.
RECREATION, GENERAL INDUSTRIAL AND OTHER SALES
Worldwide sales were $153.9 million in 1995, compared with $131.4 million
in 1994 and $123.9 million in 1993. Sales of new products introduced within the
past few years continued to grow, and Hexcel benefited from strong European
demand for printed circuit boards. In addition, sales of lightweight, high-
strength materials for use in athletic shoes, golf club shafts, energy
absorption products, and certain automotive and mass transit components remained
relatively strong. Continued growth in sales to recreation, general industrial
and other markets has contributed to an increase of such sales as a percentage
of the consolidated total from 34% in 1991 to 44% in 1995.
GROSS MARGIN
Gross margin was $67.1 million, or 19.2% of sales, in 1995. This compares
with gross margin of $48.4 million, or 15.4% of sales, in 1994 and $47.5
million, or 15.3% of sales, in 1993. The increase in 1995 gross margin over
1994 and 1993 levels reflects the impact of higher sales, as well as certain
36
<PAGE>
manufacturing cost reductions. Cost reductions include the closure of the
Graham, Texas plant, the sale of the Chandler facility and the consolidation of
selected honeycomb production activities into Hexcel's site at Casa Grande,
Arizona. Although these measures were initially undertaken in 1993 and 1994,
the transfer of certain production processes from Graham and Chandler to Casa
Grande was not completed until the middle of 1995. Consequently, the beneficial
impact of these facility reductions and the consolidation of honeycomb
production activities began to be realized during 1995.
Due to the highly competitive nature of most of the markets in which Hexcel
competes, product price changes were not a significant factor in the growth of
1995 gross margin.
MARKETING, GENERAL AND ADMINISTRATIVE (M,G&A) EXPENSES
M,G&A expenses were $49.3 million in 1995, compared with $45.8 million in
1994 and $52.5 million in 1993. The increase in M,G&A expenses during 1995 is
largely attributable to higher selling expenses, certain costs incurred in
connection with the acquisition of the Ciba Composites Business and changes in
currency exchange rates. The decrease in M,G&A expenses during 1994 was mainly
due to significant headcount reductions made during 1993 and the first quarter
of 1994. These headcount reductions were achieved through a reorganization of
sales, marketing and administrative functions to reduce redundancies and
inefficiencies. M,G&A expenses include research and technology expenses of $7.6
million in 1995, $8.2 million in 1994 and $8.0 million in 1993.
INTEREST EXPENSE
Interest expense was $8.7 million in 1995, compared with $11.8 million in
1994 and $8.9 million in 1993. The 1994 total includes accrued interest on
prepetition accounts payable as well as notes payable. The decline in interest
expense from 1994 to 1995 reflects the absence of interest on bankruptcy claims
after February 9, 1995, as well as the elimination of various debt obligations
with proceeds from the subscription rights offering and the Chandler
transaction. Hexcel also benefited from slightly lower interest rates on
certain variable rate debt.
The increase in interest expense from 1993 to 1994 reflects the accrual of
interest on bankruptcy claims beginning December 6, 1993, the cost of a debtor-
in-possession credit facility and higher interest rates on certain variable rate
obligations. These factors were only partially offset by reduced levels of
borrowing by Hexcel's European subsidiaries.
INCOME TAXES
As of December 31, 1995, the Company had net operating loss ("NOL")
carryforwards for U.S. federal income tax purposes of approximately $65 million
and net operating loss carryforwards for international income tax purposes of
approximately $5 million. The U.S. NOL carryforwards, which are available to
offset future taxable income, expire at various dates through the year 2010. As
a result of the ownership changes which occurred in connection with the
Reorganization Plan and the acquisition of the Ciba Composites Business,
utilization of the U.S. NOL carryforwards is subject to certain annual
limitations, as described in Note 16 to the Consolidated Financial Statements
included in this Annual Report on Form 10-K.
The 1995 income tax provision of $3.3 million resulted primarily from state
income taxes and taxable income for certain European subsidiaries. The 1994 and
1993 income tax provisions of $3.6 million and $6.0 million, respectively, were
attributable to the same factors. In addition, the 1994 provision includes the
impact of settling various tax audits. Hexcel fully reserved the income tax
assets
37
<PAGE>
generated by the pre-tax losses of certain subsidiaries in 1995, 1994 and 1993,
due to uncertainty as to the realization of those assets.
FINANCIAL CONDITION AND LIQUIDITY
FINANCIAL RESOURCES
In connection with the acquisition of the Ciba Composites Business on
February 29, 1996, Hexcel obtained the Senior Secured Credit Facility. The
Senior Secured Credit Facility is a three-year revolving credit facility of up
to $175.0 million which is available to: (a) fund the $25.0 million cash
component of the purchase price paid for the Ciba Composites Business; (b)
refinance outstanding indebtedness under certain U.S. and European credit
facilities; and (c) provide for the ongoing working capital and other financing
requirements of the Company, including consolidation activities, on a worldwide
basis. The Senior Secured Credit Facility replaces the Revolving Credit
Facility which was obtained on February 9, 1995, in connection with Hexcel's
Reorganization Plan, as well as certain European credit facilities.
The Senior Secured Credit Facility is secured by a pledge of stock of
certain of Hexcel's subsidiaries, and is also guaranteed by the Company and
certain of its subsidiaries. In addition, the Company is subject to various
financial covenants and restrictions under the Senior Secured Credit Facility,
including minimum levels of tangible net worth and fixed charge coverage, and
maximum levels of debt to earnings before interest, taxes, depreciation and
amortization. The Senior Secured Credit Facility also imposes certain
restrictions on incurring additional indebtedness, and generally prohibits the
Company from paying dividends or redeeming capital stock.
In addition to providing for typical events of default, including an event
of default resulting from a "change in control" (as defined) of the Company, the
Senior Secured Credit Facility provides that an event of default would occur if,
under certain circumstances, Ciba: (a) ceases to hold, directly or indirectly
through one or more wholly-owned subsidiaries, 100% of the outstanding principal
amount of the Senior Subordinated Notes, or (b) ceases to beneficially own,
directly or indirectly, at least 40% of Hexcel's voting stock. In light of the
foregoing, the Company and Ciba entered into a Retention Agreement, dated as of
February 29, 1996, pursuant to which Ciba agreed, subject to the limitations set
forth therein, to: (a) hold directly or indirectly through one or more wholly-
owned subsidiaries, 100% of the outstanding principal amount of the Senior
Subordinated Notes, and (b) beneficially own, directly or indirectly, at least
40% of the Company's voting stock. Further discussion of the Senior Secured
Credit Facility is included in the Notes to the Consolidated Financial
Statements included in this Annual Report on Form 10-K.
Management believes that the Senior Secured Credit Facility provides Hexcel
with more borrowing capacity and imposes less restrictive conditions than the
credit facilities which it has replaced. Management expects that the financial
resources of Hexcel, including the Senior Secured Credit Facility, will be
sufficient to fund the Company's worldwide operations, including the operations
of the Ciba Composites Business.
CASH FLOWS
Unaudited pro forma financial information as to the acquisition of the Ciba
Composites Business, including the financing of this acquisition, is included in
Note 3 to the Consolidated Financial Statements included in this Annual Report
on Form 10-K.
38
<PAGE>
Income from continuing operations before interest expense, bankruptcy
reorganization expenses, income taxes, and depreciation and amortization
("EBITDA") was $30.2 million in 1995, but continuing operations used $3.0
million of cash. Approximately $23.0 million of the difference between EBITDA
and net cash flow used by continuing operations is attributable to the payment
of prepetition accounts payable and accrued liabilities that had been reinstated
on February 9, 1995, and another $6.5 million is attributable to the payment of
accrued restructuring costs. In addition, Hexcel incurred $8.7 million of
interest expense, $3.4 million of bankruptcy reorganization expenses, and
financed a $9.9 million increase in accounts receivable and inventories
resulting from higher sales levels. However, the Company benefited from a $19.4
million increase in postpetition accounts payable and accrued liabilities,
reflecting both higher production levels and a return to normal credit terms
with most vendors.
EBITDA was $21.7 million in 1994, and net cash provided by continuing
operations was $1.1 million. Interest and bankruptcy reorganization expenses
totaled $32.0 million, but these expenditures were largely offset by a
comparable increase in accounts payable and accrued liabilities (including
liabilities subject to disposition in bankruptcy reorganization). The increase
in accounts payable and accrued liabilities was primarily attributable to the
accrual of interest on prepetition obligations, adjustments to allowed claims,
and a return to payment terms with some vendors. In addition, Hexcel paid
approximately $10.1 million in restructuring costs and financed a $7.4 million
increase in accounts receivable and inventories.
EBITDA is presented for purposes of describing the significant components
of Hexcel's cash flows from continuing operating activities, and is not
presented as an alternative measure of those cash flows or of the Company's
operating results as determined in accordance with generally accepted accounting
principles.
CAPITAL EXPENDITURES
Capital expenditures were $12.1 million in 1995, compared with $8.4 million
in 1994 and $6.3 million in 1993. The increase from 1994 and 1993 levels is due
to purchases of equipment necessary to improve manufacturing processes, and to
the deferral of expenditures during bankruptcy reorganization proceedings.
Further increases in capital spending are expected in 1996, partially as a
result of the acquisition of the Ciba Composites Business. The 1995 capital
expenditures of the Ciba Composites Business were $13.2 million, and management
expects that the Company's 1996 capital expenditures will exceed the $25.3
million spent in the aggregate by the Company and the Ciba Composites Business
during 1995. Such expenditures will be financed with cash generated from
operations and borrowings under the Senior Secured Credit Facility.
RECENTLY ISSUED ACCOUNTING STANDARDS
Hexcel is required to adopt 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"), in 1996. 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 the Company's strategic
business units. Management has not yet determined the impact, if any, that the
adoption of SFAS 121 will have on the Company's consolidated financial position
or results of operations.
39
<PAGE>
Hexcel is required to adopt Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"), in 1996. SFAS 123
establishes accounting and disclosure requirements using a fair value based
method of accounting for stock based employee compensation plans. Under SFAS
123, the Company may either adopt the new fair value based accounting method or
continue the intrinsic value based method and provide pro forma disclosures of
net earnings and earnings per share as if the fair value method had been
applied. The Company plans to adopt only the disclosure requirements of SFAS
123. Consequently, the adoption of SFAS 123 will have no effect on the
Company's consolidated net earnings.
40
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Description Page
- --------------------------------------------------------------------------------------------------
<S> <C>
Management Responsibility for Financial Statements 42
Independent Auditors' Report 43
Consolidated Financial Statements:
Consolidated Statements of Operations: Three years ended December 31, 1995 44
Consolidated Balance Sheets: December 31, 1995 and 1994 45
Consolidated Statements of Cash Flows: Three years ended December 31, 1995 46
Consolidated Statements of Shareholders' Equity (Deficit):
Three years ended December 31, 1995 47
Notes to the Consolidated Financial Statements 48 - 81
Statement Regarding Computation of Per Share Earnings (Unaudited) Exhibit 11
</TABLE>
Financial statement schedules have been omitted because they are not
applicable or the required information is included in the consolidated financial
statements or notes thereto.
41
<PAGE>
MANAGEMENT RESPONSIBILITY FOR FINANCIAL STATEMENTS
Hexcel management has prepared and is responsible for the consolidated
financial statements and the related financial data contained in this report.
These financial statements, which include estimates, were prepared in accordance
with generally accepted accounting principles. Management uses its best
judgment to ensure that such statements reflect fairly the consolidated
financial position, results of operations and cash flows of the Company.
Hexcel maintains accounting and other control systems which management
believes provide reasonable assurance that financial records are reliable for
purposes of preparing financial statements and that assets are safeguarded and
accounted for properly. Underlying this concept of reasonable assurance is the
premise that the cost of control should not exceed benefits derived from
control.
The Audit Committee of the Board of Directors reviews and monitors the
financial reports and accounting practices of Hexcel. These reports and
practices are reviewed regularly by management and by the independent auditors,
Deloitte & Touche LLP, in connection with the audit of the Company's financial
statements. The Audit Committee, composed solely of outside directors, meets
periodically, separately and jointly, with management and the independent
auditors.
/s/ JOHN J. LEE
- ------------------------------
(John J. Lee)
CHIEF EXECUTIVE OFFICER
/s/ WILLIAM P. MEEHAN
- ------------------------------
(William P. Meehan)
CHIEF FINANCIAL OFFICER
/s/ WAYNE C. PENSKY
- ------------------------------
(Wayne C. Pensky)
CHIEF ACCOUNTING OFFICER
42
<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, 1995 and 1994, 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, 1995. These
financial statements are the responsibility of Hexcel'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, such consolidated financial statements present fairly, in all
material respects, the financial position of Hexcel Corporation and subsidiaries
at December 31, 1995 and 1994, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
As discussed in Note 4 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 Note
4.
As discussed in Notes 2 and 3 to the consolidated financial statements, on
February 29, 1996, Hexcel acquired the Ciba Composites Business.
As discussed in Note 1 to the consolidated financial statements, Hexcel 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
March 1, 1996
43
<PAGE>
<TABLE>
<CAPTION>
HEXCEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 350,238 $ 313,795 $ 310,635
Cost of sales (283,148) (265,367) (263,090)
- -------------------------------------------------------------------------------------------------------
Gross margin 67,090 48,428 47,545
Marketing, general and administrative expenses (49,324) (45,785) (52,510)
Other income (expenses), net 791 4,861 (12,780)
Restructuring expenses - - (46,600)
- -------------------------------------------------------------------------------------------------------
Operating income (loss) 18,557 7,504 (64,345)
Interest expense (8,682) (11,846) (8,862)
Bankruptcy reorganization expenses (3,361) (20,152) (641)
- -------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before income taxes 6,514 (24,494) (73,848)
Provision for income taxes (3,313) (3,586) (6,024)
- -------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations 3,201 (28,080) (79,872)
Discontinued operations:
Income (loss) from operations, net of (provision) for
income taxes of ($441) in 1994 and ($177) in 1993 - 989 (6,584)
Losses during phase-out period, net of benefit
(provision) for income taxes of ($136) in 1994
and $383 in 1993 (468) (2,879) (4,039)
- -------------------------------------------------------------------------------------------------------
Income (loss) before cumulative effect of
accounting change 2,733 (29,970) (90,495)
Cumulative effect of change in accounting for income taxes - - 4,500
- -------------------------------------------------------------------------------------------------------
Net income (loss) $ 2,733 $ (29,970) $ (85,995)
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Net income (loss) per share and equivalent share:
Primary and fully diluted:
Continuing operations $ 0.20 $ (3.84) $ (10.89)
Discontinued operations (0.03) (0.26) (1.45)
Cumulative effect of change in accounting for
income taxes - - 0.61
- -------------------------------------------------------------------------------------------------------
Net income (loss) $ 0.17 $ (4.10) $ (11.73)
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Weighted average shares and equivalent shares 15,742 7,310 7,330
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
44
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
DECEMBER 31, December 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 3,829 $ 931
Receivables from asset sales - 29,340
Accounts receivable 65,888 64,136
Inventories 55,475 47,364
Prepaid expenses 2,863 3,581
Net assets of discontinued operations - 3,000
- ---------------------------------------------------------------------------------------------------------------
Total current assets 128,055 148,352
- ---------------------------------------------------------------------------------------------------------------
Property, plant and equipment 203,580 186,328
Less accumulated depreciation 117,625 103,215
- ---------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 85,955 83,113
- ---------------------------------------------------------------------------------------------------------------
Investments and other assets 16,592 11,992
- ---------------------------------------------------------------------------------------------------------------
Total assets $ 230,602 $ 243,457
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and current maturities of long-term liabilities $ 1,802 $ 12,720
Accounts payable 22,904 18,163
Accrued liabilities 38,892 32,234
Accrued restructuring liabilities 2,887 11,165
Liabilities subject to disposition in bankruptcy reorganization - 97,025
- ---------------------------------------------------------------------------------------------------------------
Total current liabilities 66,485 171,307
- ---------------------------------------------------------------------------------------------------------------
Long-term notes payable and capital lease obligations 88,342 16,004
Deferred liabilities 27,401 21,279
Liabilities subject to disposition in bankruptcy reorganization - 40,752
- ---------------------------------------------------------------------------------------------------------------
Shareholders' equity (deficit):
Common stock, $0.01 par value, authorized 40,000 shares, shares
issued and outstanding of 18,091 in 1995 and 7,301 in 1994 181 73
Additional paid-in capital 111,259 62,626
Accumulated deficit (69,981) (72,714)
Minimum pension obligation adjustment (535) (137)
Cumulative currency translation adjustment 7,450 4,267
- ---------------------------------------------------------------------------------------------------------------
Total shareholders' equity (deficit) 48,374 (5,885)
- ---------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity (deficit) $ 230,602 $ 243,457
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
45
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income (loss) from continuing operations $ 3,201 $ (28,080) $ (79,872)
Reconciliation to net cash provided (used) by
continuing operations:
Depreciation and amortization 11,623 14,230 14,880
Deferred provision (benefit) for income taxes (329) 3,609 4,805
Other income relating to sale of the Chandler, Arizona
manufacturing facility and related assets and technology (600) (15,900) -
Provision for DIC-Hexcel Limited - 8,000 -
Restructuring expenses - - 46,600
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (1,752) (1,168) 9,157
(Increase) decrease in inventories (8,111) (6,228) 3,336
(Increase) decrease in prepaid expenses 718 (454) (1,775)
Increase (decrease) in accounts payable and
accrued liabilities (10,090) 30,966 3,959
Changes in other non-current assets and long-term liabilities 2,346 (3,876) 9,736
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by continuing operations (2,994) 1,099 10,826
Net cash provided (used) by discontinued operations 486 (2,206) 624
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities (2,508) (1,107) 11,450
- ----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (12,144) (8,362) (6,264)
Proceeds from equipment sold 17 229 764
Deferred business acquisition costs, incurred in connection
with the acquisition of the Ciba Composites Business (4,150) - -
Proceeds from sale of discontinued resins business 4,648 6,125 -
Proceeds from sale of the Chandler, Arizona manufacturing
facility and certain related assets and technology 27,294 2,294 -
Proceeds from sale of stitchbonded fabrics business to
joint venture - - 4,500
Investments in joint ventures - - (1,750)
Proceeds from sale of discontinued fine chemicals business - - 500
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities 15,665 286 (2,250)
- ----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 4,317 171 -
Payments of long-term debt (5,402) (11,413) (4,801)
Proceeds of short-term debt, net 20,923 1,687 6,847
Proceeds from issuance of common stock 48,741 - 270
Payments of allowed claims pursuant to the Reorganization Plan (78,144) - -
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (9,565) (9,555) 2,316
- ----------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and equivalents (694) (41) (535)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents 2,898 (10,417) 10,981
Cash and equivalents at beginning of year 931 11,348 367
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of year $ 3,829 $ 931 $ 11,348
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
46
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock Retained Minimum Cumulative Total
----------------------- Additional Earnings Pension Currency Shareholders'
Outstanding Paid-in (Accumulated Obligation Translation Equity
(In thousands) Shares Amount Capital Deficit) Adjustment Adjustment (Deficit)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993 7,296 $ 73 $ 62,292 $ 43,251 - $ 533 $ 106,149
Net loss - - - (85,995) - - (85,995)
Activity under stock plans 14 - 270 - - - 270
Pension obligation adjustment - - - - $ (646) - (646)
Currency translation adjustment - - - - - 975 975
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993 7,310 73 62,562 (42,744) (646) 1,508 20,753
Net loss - - - (29,970) - - (29,970)
Activity under stock plans (9) - 64 - - - 64
Pension obligation adjustment - - - - 509 - 509
Currency translation adjustment - - - - - 2,759 2,759
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 7,301 73 62,626 (72,714) (137) 4,267 (5,885)
Net income - - - 2,733 - - 2,733
Sale of new common stock under
standby purchase commitment
and subscription rights offering 10,800 108 48,631 - - - 48,739
Activity under stock plans (10) - 2 - - - 2
Pension obligation adjustment - - - - (398) - (398)
Currency translation adjustment - - - - - 3,183 3,183
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 18,091 $ 181 $ 111,259 $ (69,981) $ (535) $ 7,450 $ 48,374
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
47
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND BASIS OF ACCOUNTING
The consolidated financial statements include the accounts of Hexcel
Corporation and subsidiaries ("Hexcel" or the "Company"), after elimination of
intercompany transactions and accounts. Hexcel is an international developer
and manufacturer of lightweight, high-performance composite materials, parts and
structures for use in the commercial aerospace, space and defense, recreation
and general industrial markets. The Company serves international markets
through manufacturing and marketing facilities located in the United States and
Europe, as well as sales offices in Asia, Australia and South America. The
Company is also a partner in three joint ventures that manufacture and sell
composite materials in the U.S. and Asia.
As discussed in Notes 2 and 3, Hexcel acquired the worldwide composites
division of Ciba-Geigy Limited, a Swiss corporation ("Ciba"), and Ciba-Geigy
Corporation, a New York corporation ("CGC"), including Ciba's and CGC's
composite materials, parts and structures businesses (the "Ciba Composites
Business"), on February 29, 1996. The Company acquired the Ciba Composites
Business in exchange for: (a) approximately 18,022 newly issued shares of Hexcel
common stock; (b) $25,000 in cash; and (c) undertakings to deliver to Ciba
and/or one or more of its subsidiaries, following completion of certain post-
closing adjustment procedures, various senior subordinated notes and senior
demand notes. In connection with the acquisition of the Ciba Composites
Business, the Company obtained a new three-year revolving credit facility of up
to $175,000 (the "Senior Secured Credit Facility") to: (a) fund the cash
component of the purchase price; (b) refinance outstanding indebtedness under
certain U.S. and European credit facilities; and (c) provide for the ongoing
working capital and other financing requirements of the Company on a worldwide
basis (see Note 10). The acquisition of the Ciba Composites Business and
related financing activities occurred subsequent to December 31, 1995, and have
not been reflected in the historical consolidated financial statements and
accompanying notes presented herein.
As discussed in Note 4, Hexcel Corporation (a Delaware corporation)
operated as a debtor-in-possession under the provisions of Chapter 11 of the
federal bankruptcy laws from December 6, 1993 until February 9, 1995, when the
First Amended Plan of Reorganization (the "Reorganization Plan") proposed by
Hexcel and the Official Committee of Equity Security Holders (the "Equity
Committee") became effective. Consequently, the consolidated financial
statements as of December 31, 1994, and for each of the three years in the
period ended December 31, 1995, have been prepared in accordance with Statement
of Position 90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code," issued by the American Institute of Certified Public
Accountants ("SOP 90-7").
CASH AND EQUIVALENTS
The Company invests excess cash in investments with original maturities of
less than three months. The investments consist of Eurodollar time deposits and
are stated at cost, which approximates market value. The Company considers such
investments to be cash equivalents for purposes of the statements of cash flows.
ACCOUNTS RECEIVABLE
Accounts receivable were net of reserves for doubtful accounts of $2,603
and $1,249 as of December 31, 1995 and 1994, respectively.
48
<PAGE>
INVENTORIES
Inventories are valued at the lower of cost or market, with cost determined
on a first-in, first-out basis.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Repairs and
maintenance are charged to expense as incurred; replacements and betterments are
capitalized. Interest expense associated with major long-term construction
projects is capitalized. No interest was capitalized in 1995 or 1994; $227 of
interest was capitalized in 1993.
The Company depreciates property, plant and equipment over estimated useful
lives. Accelerated and straight-line methods are used for financial statement
purposes. The estimated useful lives range from 10 to 40 years for buildings
and improvements and 3 to 20 years for machinery and equipment.
CURRENCY TRANSLATION
The assets and liabilities of European subsidiaries are translated into
U.S. dollars at year-end exchange rates, and revenues and expenses are
translated at average exchange rates during the year. Cumulative currency
translation adjustments are included in shareholders' equity. Realized gains
and losses from currency exchange transactions were not material to the
Company's consolidated results of operations in 1995, 1994 or 1993.
RESEARCH AND TECHNOLOGY COSTS
Research and technology costs of $7,618 in 1995, $8,201 in 1994 and $7,971
in 1993 were expensed as incurred, and are included in "marketing, general and
administrative expenses" in the consolidated statements of operations.
ACCOUNTING CHANGE
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109") (see
Note 16). The cumulative effect of this accounting change has been reflected in
the consolidated statement of operations for the year ended December 31, 1993.
EARNINGS PER SHARE
Net income (loss) per share is computed by dividing net income (loss) by
the weighted average number of common shares and dilutive common share
equivalents (stock options) outstanding during each year. The computation on
the fully diluted basis, which considers the exercise of stock options and the
conversion of the convertible subordinated debentures, was antidilutive in 1995,
1994 and 1993.
RECLASSIFICATIONS
Certain prior year amounts in the consolidated financial statements and
notes have been reclassified to conform to the 1995 presentation.
ESTIMATES AND ASSUMPTIONS
The consolidated financial statements and accompanying notes reflect
numerous estimates and assumptions made by the management of Hexcel. These
estimates and assumptions affect the reported amounts of assets and liabilities,
the disclosures with respect to contingent assets and liabilities, and the
reported amounts of revenues and expenses. Although management believes that
the estimates and assumptions used in preparing the consolidated financial
statements and accompanying notes are reasonable in light of known facts and
circumstances, actual results could differ from the estimates used.
49
<PAGE>
RECENTLY ISSUED ACCOUNTING STANDARDS
Hexcel is required to adopt 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"), in 1996. 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 the Company's strategic
business units. Management has not yet determined the impact, if any, that the
adoption of SFAS 121 will have on the Company's consolidated financial position
or results of operations.
Hexcel is required to adopt Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"), in 1996. SFAS 123
establishes accounting and disclosure requirements using a fair value based
method of accounting for stock based employee compensation plans. Under SFAS
123, the Company may either adopt the new fair value based accounting method or
continue the intrinsic value based method and provide pro forma disclosures of
net earnings and earnings per share as if the fair value method had been
applied. The Company plans to adopt only the disclosure requirements of SFAS
123. Consequently, the adoption of SFAS 123 will have no effect on the
Company's consolidated net earnings.
NOTE 2 -- ACQUISITION OF THE CIBA COMPOSITES BUSINESS
Hexcel acquired the Ciba Composites Business of Ciba-Geigy Limited and
Ciba-Geigy Corporation on February 29, 1996. The Ciba Composites Business is
engaged in the manufacture and marketing of composite materials, parts and
structures for aerospace, recreation and general industrial markets. Product
lines include fabrics, prepregs, adhesives, honeycomb core, sandwich panels and
fabricated components, as well as structures and interiors primarily for the
commercial and military aerospace markets.
The acquisition of the Ciba Composites Business was consummated pursuant to
a Strategic Alliance Agreement dated as of September 29, 1995 among Ciba, CGC,
and Hexcel, as amended (the "Strategic Alliance Agreement"). Under the
Strategic Alliance Agreement, the Company acquired the assets (including the
capital stock of certain of Ciba's non-U.S. subsidiaries) and assumed the
liabilities of the Ciba Composites Business other than certain excluded assets
and liabilities in exchange for: (a) approximately 18,022 newly issued shares of
Hexcel common stock; (b) $25,000 in cash; and (c) undertakings to deliver to
Ciba and/or one or more of its subsidiaries, following completion of certain
post-closing adjustment procedures contemplated by the Strategic Alliance
Agreement, senior subordinated notes in an aggregate principal amount of
approximately $43,000, subject to certain adjustments (the "Senior Subordinated
Notes"), and senior demand notes in a principal amount equal to the cash on hand
at certain of Ciba's non-U.S. subsidiaries (the "Senior Demand Notes"). (The
pro forma aggregate principal amount of the Senior Subordinated Notes as of
December 31, 1995 was $27,400. See Note 3.) In connection with the acquisition
of the Ciba Composites Business, the Company obtained the Senior Secured Credit
Facility to: (a) fund the cash component of the purchase price; (b) refinance
outstanding indebtedness under certain U.S. and European credit facilities; and
(c) provide for the ongoing working capital and other financing requirements of
the Company on a worldwide basis (see Note 10). The acquisition of the Ciba
Composites Business and related financing activities occurred subsequent to
December 31, 1995, and have not been reflected in the historical consolidated
financial statements and accompanying notes presented herein.
50
<PAGE>
NOTE 3 -- ACQUISITION OF THE CIBA COMPOSITES BUSINESS: PRO FORMA FINANCIAL
INFORMATION (UNAUDITED)
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 of the Ciba
Composites Business by the Company. The unaudited pro forma condensed combined
balance sheet as of December 31, 1995 gives effect to the acquisition as if it
had occurred on December 31, 1995. The unaudited pro forma condensed combined
statement of operations for the year ended December 31, 1995 gives effect to the
acquisition as if it had occurred on January 1, 1995. The pro forma adjustments
account for the acquisition as a purchase of the Ciba Composites Business by the
Company, and are based upon the assumptions set forth in the accompanying
disclosures.
The following unaudited pro forma financial information is not necessarily
indicative of the financial position or operating results that would have
occurred had the acquisition of the Ciba Composites Business 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
1996. 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. This is attributable, in part, to aerospace industry
requirements to "qualify" specific equipment and manufacturing facilities for
the manufacture of certain products. Based on the Company'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.
The Board of Directors of Hexcel has not yet approved the plan for
combining the operations of Hexcel and the Ciba Composites Business, but is
expected to do so in the second quarter of 1996. Subject to the approval of the
consolidation plan by the Board of Directors, management currently estimates
that the cash costs of combining the two businesses could range from $35,000 to
$45,000, net of expected proceeds from asset sales which are expected to be
received at the end of the consolidation process. (This range includes the
estimated net cash cost to close the Anaheim manufacturing facility of the Ciba
Composites Business. The decision to close this facility was announced in the
first quarter of 1996.) Management notes, however, that the actual cash costs
of combining the two businesses could vary from current estimates due to the
fact that the nature, timing and extent of certain consolidation activities is
dependent on numerous factors.
Management expects to record one or more charges to earnings for the
estimated costs of certain business consolidation activities. The estimated
costs of specific consolidation activities will be accrued in accordance with
generally accepted accounting principles as those activities are determined and
announced. Although the aggregate amount of the resulting charges to earnings
has not yet been determined, management currently estimates that the amount
could range from $40,000 to $50,000, including noncash charges. However, the
actual aggregate amount of such charges could vary from current estimates.
The cash expenditures necessary to combine the Ciba Composites Business
with Hexcel are expected to occur over a period of as much as three years. The
nature, timing and extent of these expenditures will be determined, in part, by
management's evaluation of the probable economic and competitive benefits to
51
<PAGE>
be gained from specific consolidation activities. Management anticipates that
the benefits to be realized from planned consolidation activities will be
sufficient to justify the level of associated costs. However, some of the
anticipated benefits are long-term in nature, and there can be no assurance that
such benefits will actually be realized. Accordingly, 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.
52
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
-----------------------------------------------------
HISTORICAL PRO FORMA
----------------------- -----------------------
CIBA
HEXCEL COMPOSITES ADJUSTMENTS COMBINED
--------- ---------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 3,829 $ 8,412 $ (8,412) (a) $ 3,829
Accounts receivable 65,888 58,799 (5,805) (b) 118,882
Inventories 55,475 60,337 (1,545) (c) 114,267
Prepaid expenses and other assets 2,863 9,957 (6,019) (d) 6,801
-------- -------- --------- --------
Total current assets 128,055 137,505 (21,781) 243,779
-------- -------- --------- --------
Net property, plant and equipment 85,955 156,364 (45,487) (e) 196,832
Excess of purchase price over net
assets acquired 44,300 (f) 44,300
Investments and other assets 16,592 46,425 (47,069) (g) 15,948
-------- -------- --------- --------
Total assets $ 230,602 $ 340,294 $ (70,037) $ 500,859
-------- -------- --------- --------
-------- -------- --------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable and current
maturities of long-term
liabilities $ 1,802 $ 10,469 $ (9,052) (h) $ 3,219
Accounts payable 22,904 29,611 (1,208) (i) 51,307
Accrued liabilities 41,779 27,574 69,353
-------- -------- --------- --------
Total current liabilities 66,485 67,654 (10,260) 123,879
-------- -------- --------- --------
Senior subordinated notes, payable to
Ciba-Geigy 26,300 (j) 26,300
Other long-term liabilities, less
current maturities 115,743 28,723 18,898 (k) 163,364
Minority interest 6,968 (6,968) (l)
-------- -------- --------- --------
Shareholders' equity:
Common stock & additional
paid-in capital 111,440 140,600 (m) 252,040
Accumulated deficit (69,981) (1,658) (n) (71,639)
Minimum pension obligation
adjustment (535) (535)
Cumulative currency translation
adjustment 7,450 7,450
Invested capital 236,949 (236,949) (o)
-------- -------- --------- --------
Total shareholders' equity 48,374 236,949 (98,007) 187,316
-------- -------- --------- --------
Total liabilities and
shareholders' equity $ 230,602 $ 340,294 $ (70,037) $ 500,859
-------- -------- --------- --------
-------- -------- --------- --------
</TABLE>
53
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
--------------------------------------------------------
HISTORICAL PRO FORMA
----------------------- ---------------------------
CIBA
HEXCEL COMPOSITES ADJUSTMENTS COMBINED
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales $ 350,238 $ 331,073 $ (3,207) (p) $ 678,104
Cost of sales (283,148) (273,997) 6,860 (q) (550,285)
---------- ---------- --------- ----------
Gross margin 67,090 57,076 3,653 127,819
Marketing, general and administrative expenses (49,324) (57,966) (107,290)
Amoritization and write-downs of intangible assets (6,930) 4,385 (r) (2,545)
Other income (expenses), net 791 (1,102) (311)
Restructuring expenses (2,362) (2,362)
---------- ---------- --------- ----------
Operating income (loss) 18,557 (11,284) 8,038 15,311
Interest expense (8,682) (668) (869) (s) (10,219)
Bankruptcy reorganization expenses (3,361) (t) (3,361) (t)
Minority interest (1,506) 1,506 (u)
---------- ---------- --------- ----------
Income (loss) from continuing operations before
income taxes 6,514 (13,458) 8,675 1,731
Provision for income taxes (3,313) (5,085) (v) (8,398)
---------- ---------- --------- ----------
Income (loss) from continuing operations 3,201 (18,543) 8,675 6,667
Loss from discontinued operations (468) (468)
---------- ---------- --------- ----------
Net income (loss) $ 2,733 $ (18,543) $ 8,675 $ (7,135)
---------- ---------- --------- ----------
---------- ---------- --------- ----------
Net income (loss) per share and equivalent share:
Primary and fully diluted
Continuing operations $ 0.20 $ (0.20)
Discontinued operations (0.03) (0.01)
---------- ----------
Net income (loss) $ 0.17 $ (0.21)
---------- ----------
---------- ----------
Weighted average shares and equivalent shares 15,742 33,764
---------- ----------
---------- ----------
</TABLE>
The 1995 net loss for the Ciba Composites Business of $18,543 includes a fourth
quarter net loss of $9,537. The fourth quarter net loss includes approximately
$6,340 costs attibutable to write-downs of certain fixed and intangible
assets, severance expenses, reserves for uncollectible receivables, and
acquisition-related expenses.
54
<PAGE>
PURCHASE PRICE SUMMARY AND RELATED ALLOCATION
The purchase price paid by Hexcel for the Ciba Composites Business is
comprised of the following components:
18,022 shares of Hexcel common stock, valued at $8.00 per share (1) $ 144,200
Senior Subordinated Notes payable to Ciba in 2003 (2) 26,300
Cash paid to Ciba (3) 25,000
Estimated fees and expenses in connection with the acquisition (3) 7,600
- --------------------------------------------------------------------------------
Total purchase price $ 203,100
- --------------------------------------------------------------------------------
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:
Cash and equivalents (4) --
Accounts receivable (5) $ 53,285
Inventories (6) 58,792
Prepaid expenses (5) 3,938
Net property, plant & equipment (7) 110,877
Other assets, net (8) 1,000
Investments and other assets (5) 4,214
Current liabilities (9) (57,685)
Other long-term liabilities, less current maturities (9) (19,221)
Minority interest (10) --
Shareholders' equity (11) 3,600
Excess of purchase price over net assets acquired (12) 44,300
- --------------------------------------------------------------------------------
Total purchase price $ 203,100
- --------------------------------------------------------------------------------
(1) The aggregate value of the Hexcel common stock issued to Ciba 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 stock was trading on the New York Stock
Exchange 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 for the Ciba Composites Business by
agreeing to reduce the initial aggregate principal amount of the senior
subordinated notes by $5,000. The market price is then discounted to
reflect the illiquidity of the Hexcel common stock issued to Ciba caused by
the size of Ciba's 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 of 1933, and various
other factors.
For purposes of valuing the Hexcel common stock issued to Ciba, 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 issued is used in determining the
total purchase price because the discounted market price of Hexcel common
stock is more reliably measurable than the fair value of the assets
acquired and the liabilities assumed.
(2) Based on the formula included in the Strategic Alliance Agreement, the pro
forma aggregate principal amount of the Senior Subordinated Notes as of
December 31, 1995 is approximately
55
<PAGE>
$27,400. (Such amount is estimated as follows: $43,029 (a) increased by
$9,000 for the price of acquiring a minority interest in an Austrian
subsidiary of the Ciba Composites Business; (b) increased by $6,126 for the
decline in the adjusted net working capital of Hexcel from July 2, 1995 to
December 31, 1995; (c) decreased by $25,378 for the decline in the adjusted
net working capital of the Ciba Composites Business from July 2, 1995 to
December 31, 1995; and (d) decreased by $5,377 for certain net assets of
the Ciba Composites Business retained by Ciba and other adjustments.)
However, the actual aggregate principal amount of the Senior Subordinated
Notes to be issued may be higher or lower, because the adjustments required
under the Strategic Alliance Agreement to reflect changes in working
capital and certain other items as of February 29, 1996 have not yet been
determined.
The fair value of the Senior Subordinated Notes as of December 31, 1995 is
estimated to be $26,300, which is $1,100 lower than the pro forma aggregate
principal amount. The $1,100 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 (see Note 10).
(3) The cash paid to Ciba and certain estimated fees and expenses in connection
with the acquisition of the Ciba Composites Business have been financed
with the proceeds from the Senior Secured Credit Facility (see Note 10).
(4) Under the terms of the Strategic Alliance Agreement, the cash and cash
equivalents of the Ciba Composites Business, except for cash on hand at
certain of Ciba's non-U.S. subsidiaries, are retained by Ciba. The cash on
hand at certain of Ciba's non-U.S. subsidiaries was acquired in exchange
for the Senior Demand Notes. The amount of acquired cash and the
corresponding principal amount of the Senior Demand Notes, which Hexcel
expects will be presented for payment shortly after issuance, are equal and
offset each other. Accordingly, the acquisition of such cash and the
issuance of the Senior Demand Notes has not been reflected in the unaudited
pro forma condensed combined balance sheet.
(5) 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.
(6) 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.
(7) 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: (a) duplicate capabilities or productive capacities
already possessed by Hexcel; or (b) be in excess of the combined company's
needs. 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 is retained by Ciba.
56
<PAGE>
(8) The fair value assigned to other assets reflects the capitalization of
estimated fees and expenses incurred to secure the Senior Secured Credit
Facility in connection with the acquisition of the Ciba Composites
Business.
(9) 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, certain of the liabilities of the Ciba
Composites Business are not assumed by Hexcel.
(10) Prior to Hexcel's acquisition of the Ciba Composites Business, Ciba
eliminated the minority interest in an Austrian subsidiary of the Ciba
Composites Business ("Danutec") by purchasing that interest, subject to
certain governmental approvals which were subsequently obtained.
Accordingly, the estimated pro forma purchase price and purchase price
allocation reflect the transfer of 100% of the capital stock of Danutec to
the Company, and the minority interest in Danutec has been eliminated on a
pro forma basis.
(11) The estimated fees and expenses incurred in connection with issuing the
Hexcel common stock to Ciba are deducted from shareholders' equity.
(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
Accounting Principles Board 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.
The purchase price allocation does not reflect any liabilities for the costs of
consolidating the business operations of the Ciba Composites Business and
Hexcel. Those costs, as discussed above, are expected to be significant (see
pages 51 and 52).
PRO FORMA ADJUSTMENTS -- UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(a) Adjustment to eliminate the cash and cash equivalents of the Ciba
Composites Business which are retained by Ciba $ (8,412)
---------------------------------------------------------------------------
(b) Adjustment to eliminate accounts receivable of the Ciba
Composites Business which are retained by Ciba, as well as trade
account balances between the Ciba Composites Business and Hexcel $ (5,805)
---------------------------------------------------------------------------
(c) Adjustment to eliminate inventories of the Ciba Composites Business
which are retained by Ciba, and to record acquired inventories at
estimated fair value $ (1,545)
---------------------------------------------------------------------------
(d) Adjustment to eliminate prepaid expenses and other assets of the
Ciba Composites Business which are retained by Ciba $ (6,019)
---------------------------------------------------------------------------
57
<PAGE>
(e) Adjustment to eliminate property, plant and equipment of the
Ciba Composites Business which is retained by Ciba, and to
record acquired property, plant and equipment at estimated
fair value $ (45,487)
---------------------------------------------------------------------------
(f) Adjustment to record the excess of purchase price over net
assets acquired $ 44,300
---------------------------------------------------------------------------
(g) Adjustment to reflect the following:
Elimination of the intangible assets of the Ciba Composites
Business $ (42,211)
Capitalization and reclassification of certain fees and
expenses incurred in connection with the acquisition (3,200)
Write-off of capitalized debt issuance costs in connection
with the extinguishment of certain existing debt
obligations with proceeds from the Senior Secured Credit
Facility (1,658)
---------------------------------------------------------------------------
Net adjustment $ (47,069)
---------------------------------------------------------------------------
(h) Adjustment to eliminate notes payable of the Ciba Composites
Business which are not assumed by Hexcel $ (9,052)
---------------------------------------------------------------------------
(i) Adjustment to eliminate current liabilities of the Ciba
Composites Business which are not assumed by Hexcel, as well
as trade balances between the the Ciba Composites Business and
Hexcel $ (1,208)
---------------------------------------------------------------------------
(j) Adjustment to reflect the issuance of the Senior Subordinated
Notes payable to Ciba $ 26,300
---------------------------------------------------------------------------
(k) Adjustment to reflect the following:
Elimination of long-term liabilities of the Ciba Composites
Business which are not assumed by Hexcel $ (9,502)
Net borrowings under the Senior Secured Credit Facility to
finance the cash payment to Ciba and certain fees and
expenses incurred in connection with the acquisition 28,400
---------------------------------------------------------------------------
Net adjustment $ 18,898
---------------------------------------------------------------------------
(l) Adjustment to reflect the elimination of the minority interest
in Danutec $ (6,968)
---------------------------------------------------------------------------
(m) Adjustment to reflect the issuance of Hexcel common stock to
Ciba, net of certain fees and expenses incurred in connection
with issuing such stock $ 140,600
---------------------------------------------------------------------------
(n) Adjustment to reflect the write-off of capitalized debt
issuance costs in connection with the extinguishment of
certain existing debt obligations with proceeds from the
Senior Secured Credit Facility $ (1,658)
---------------------------------------------------------------------------
(o) Adjustment to eliminate Ciba's investment in the Ciba Composites
Business $ (236,949)
---------------------------------------------------------------------------
58
<PAGE>
PRO FORMA ADJUSTMENTS -- UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS
(p) Adjustment to eliminate sales between the Ciba Composites
Business and Hexcel $ (3,207)
---------------------------------------------------------------------------
(q) Adjustment to reflect the following:
Elimination of cost of sales between the Ciba Composites
Business and Hexcel $ 2,708
Reduction in depreciation costs resulting from the purchase
price adjustment to the net property, plant and equipment
of the Ciba Composites Business 4,152
---------------------------------------------------------------------------
Net adjustment $ 6,860
---------------------------------------------------------------------------
(r) Adjustment to reflect the following:
Reduction in amortization expense and write-downs of
intangible assets resulting from the elimination of the
intangible assets of the Ciba Composites Business in
connection with the purchase price allocation $ 6,930
Amortization of the excess of purchase price over net assets
acquired (20 year amortization period) (2,215)
Amortization of capitalized fees and expenses incurred in
connection with securing the Senior Secured Credit
Facility (3 year amortization period) (330)
---------------------------------------------------------------------------
Net adjustment $ 4,385
---------------------------------------------------------------------------
(s) Adjustment to reflect the following:
Elimination of interest expense on liabilities of the Ciba
Composites Business which are not assumed by Hexcel $ 1,032
Net reduction in interest expense resulting from the
refinancing of certain credit facilities with the Senior
Secured Credit Facility 992
Estimated interest expense on the Senior Subordinated Notes
payable to Ciba (2,893)
---------------------------------------------------------------------------
Net adjustment $ (869)
---------------------------------------------------------------------------
(t) 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 year ended December 31, 1995. 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 has not incurred any significant bankruptcy-
related expenses since October 1, 1995.
(u) Adjustment to eliminate the minority interest in the operating results of
the Ciba Composites Business $ 1,506
---------------------------------------------------------------------------
(v) 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
the year ended December 31, 1995, and no income tax benefits relating to
these losses have been recognized. Furthermore, the pro forma combined
company has sufficient net operating loss carryforwards for income tax
purposes to substantially eliminate any tax liabilities arising from pro
forma adjustments.
59
<PAGE>
NOTE 4 -- BANKRUPTCY REORGANIZATION
On January 12, 1995, the United States Bankruptcy Court for the Northern
District of California (the "Bankruptcy Court") entered an order dated January
10, 1995 confirming the Reorganization Plan proposed by Hexcel and the Equity
Committee. On February 9, 1995, the Reorganization Plan became effective and
Hexcel emerged from the bankruptcy reorganization proceedings which had begun on
December 6, 1993, when Hexcel filed a voluntary petition for relief under the
provisions of Chapter 11 of the federal bankruptcy laws.
The Reorganization Plan which became effective on February 9, 1995 provided
for: (a) the replacement of a debtor-in-possession credit facility with a new
revolving credit facility (the "Revolving Credit Facility") of up to $45,000;
(b) the creation of an amended reimbursement agreement with respect to the
letters of credit in support of certain industrial development revenue bonds;
(c) the completion of the first closing under a standby purchase commitment
whereby Mutual Series Fund Inc. ("Mutual Series") purchased 1,946 shares of new
common stock for $9,000 and loaned Hexcel $41,000 as an advance against the
proceeds of a subscription rights offering for additional shares of new common
stock; and (d) the reinstatement or payment in full, with interest, of all
allowed claims, including prepetition accounts payable and notes payable.
The Revolving Credit Facility was replaced by the Senior Secured Credit
Facility on February 29, 1996 (see Note 10).
The subscription rights offering concluded on March 27, 1995, with the
issuance of an additional 7,156 shares of new common stock. The resulting cash
proceeds of $33,098 were used to reduce the outstanding balance of the loan from
Mutual Series. The second closing under the standby purchase agreement was
completed on April 6, 1995, with the issuance of an additional 1,590 shares of
new common stock to Mutual Series, the issuance of an additional 108 shares of
new common stock to John J. Lee, Hexcel's Chief Executive Officer, and the
retirement of the remaining balance of the Mutual Series loan. Following the
second closing under the standby purchase agreement on April 6, 1995, the
Company had a total of 18,101 shares of common stock issued and outstanding.
The Reorganization Plan provided for the reinstatement or payment in full,
with interest, of all allowed claims, including prepetition accounts payable and
notes payable. The total of all claims reinstated or paid, less the portion
representing accrued interest for the period from January 1 to February 9, 1995,
has been reflected as "liabilities subject to disposition in bankruptcy
reorganization" in the consolidated balance sheet as of December 31, 1994. On
February 9, 1995, Hexcel paid $78,144 in prepetition claims and interest, and
reinstated another $60,575 in prepetition liabilities. Reinstated liabilities
were reclassified from "liabilities subject to disposition in bankruptcy
reorganization" to the appropriate liability captions of the consolidated
balance sheet on February 9, 1995. The payment of claims and interest on
February 9, 1995 was financed with: (a) cash proceeds of $26,694 received in the
first quarter of 1995 from the sale of the Company's Chandler, Arizona
manufacturing facility and certain related assets and technology (see Note 5);
(b) cash proceeds of $2,602 received in the first quarter of 1995 from the sale
of the Company's European resins business (see Note 5); (c) the $50,000 in cash
received from Mutual Series in connection with the standby purchase agreement;
and (d) borrowings under the Revolving Credit Facility.
Professional fees and other costs directly related to bankruptcy
proceedings were expensed as incurred, and have been reflected in the
consolidated statements of operations as "bankruptcy reorganization expenses."
Bankruptcy reorganization expenses have consisted primarily of professional fees
paid to legal and financial advisors of Hexcel, the Equity Committee and the
Official Committee of Unsecured Creditors. In addition, these expenses included
incentives for employees to remain with the Company for the duration of
bankruptcy proceedings and the write-off of previously capitalized costs
60
<PAGE>
related to the issuance of prepetition debt, as required by SOP 90-7. The
resolution of certain bankruptcy-related issues, including the final settlement
of disputed claims and professional fees, resulted in expenses being incurred
after the effective date of the Reorganization Plan. However, the Company has
not incurred any significant bankruptcy-related expenses since October 1, 1995.
NOTE 5 -- RECEIVABLES FROM ASSET SALES
SALE OF CHANDLER, ARIZONA MANUFACTURING FACILITY AND CERTAIN RELATED ASSETS AND
TECHNOLOGY
Hexcel sold its Chandler, Arizona manufacturing facility and certain
related assets and technology to Northrop Grumman Corporation ("Northrop") in
the fourth quarter of 1994. In connection with the sale, the Company recognized
other income of $15,900, which includes the effects of reversing $10,000 of a
previously established restructuring reserve related to the Chandler facility
and $5,900 which represents the excess of the sales price over the carrying
value of the net assets sold. The transaction generated net cash proceeds of
$28,988, of which $2,294 was received in 1994 and $26,694 was received in the
first quarter of 1995. The net proceeds received in the first quarter of 1995
have been reflected in "receivables from asset sales" in the consolidated
balance sheet as of December 31, 1994.
Under the terms of the Chandler transaction, Hexcel retained a royalty-
free, non-exclusive license to use the technology sold in non-military
applications and will receive royalties from Northrop on certain applications of
that technology. In addition, the Company may receive up to an additional
$2,300 pursuant to the terms of the transaction, when certain conditions are
satisfied. Of this amount, $600 was received in the third quarter of 1995 and
has been reflected in "other income (expense), net" in the 1995 consolidated
statement of operations. An additional $1,560 was received in February 1996;
the resulting income will be recognized in the first quarter of 1996.
SALE OF RESINS BUSINESS
On December 29, 1994, Hexcel sold its European resins operations to Axson
S.A., a French corporation, through the sale of all of the Company's shares in
the capital stock of its European resins subsidiaries. The sale and related
settlement transactions generated net cash proceeds of approximately $8,727, of
which $6,125 was received in the fourth quarter of 1994 and $2,602 was received
in the first quarter of 1995. The net proceeds received in the first quarter of
1995 have been reflected in "receivables from asset sales" in the consolidated
balance sheet as of December 31, 1994.
Hexcel sold its U.S. resins operations to Fiber-Resin Corporation, a
wholly-owned subsidiary of H.B. Fuller Company, on October 30, 1995. The
estimated net proceeds from the sale approximated the net book value of the
assets sold. The sale of the Company's U.S. resins operations completed the
divestiture of the resins business, which has been accounted for as a
discontinued operation in the consolidated financial statements for all periods
presented (see Note 23).
61
<PAGE>
NOTE 6 -- INVENTORIES
<TABLE>
<CAPTION>
Inventories as of December 31, 1995 and 1994 were:
- -----------------------------------------------------------------------------
1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 22,257 $ 18,846
Work in progress 13,688 12,518
Finished goods 17,778 14,934
Supplies 1,752 1,066
- -----------------------------------------------------------------------------
Inventories $ 55,475 $ 47,364
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
NOTE 7 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 31, 1995 and 1994 were:
- -----------------------------------------------------------------------------
1995 1994
- -----------------------------------------------------------------------------
Land $ 2,349 $ 2,213
Buildings 46,560 36,913
Equipment 154,671 147,202
- -----------------------------------------------------------------------------
Property, plant and equipment 203,580 186,328
Less accumulated depreciation (117,625) (103,215)
- -----------------------------------------------------------------------------
Net property, plant and equipment $ 85,955 $ 83,113
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
NOTE 8 -- INVESTMENTS AND OTHER ASSETS
Investments and other assets as of December 31, 1995 and 1994 were:
- -----------------------------------------------------------------------------
1995 1994
- -----------------------------------------------------------------------------
Investments in joint ventures $ 6,615 $ 6,287
Deferred business acquisition costs 4,150 --
Debt financing costs, net of accumulated
amortization of $529 as of December 31, 1995 1,658 --
Other assets 4,169 5,705
- -----------------------------------------------------------------------------
Investments and other assets $ 16,592 $ 11,992
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
Investments in joint ventures consist of a 50% equity interest in Knytex
Company, L.L.C. ("Knytex"), which is jointly owned and operated with Owens-
Corning Fiberglas Corporation, and a 40% equity interest in Hexcel-Fyfe, L.L.C.
("Hexcel-Fyfe"), which is jointly owned and operated with Fyfe Associates
Corporation. The Company also owns an equity interest in DIC-Hexcel Limited, a
joint venture with Dainippon Ink and Chemicals, Inc. ("DIC"), for which there
was no recorded asset value as of December 31, 1995 or 1994 (see Note 9).
Investments in joint ventures are accounted for by the equity method. Equity in
the earnings of joint ventures were not material to the Company's consolidated
results of operations in 1995, 1994 or 1993.
Knytex was formed on June 30, 1993 when the Company sold 50% of its
stitchbonded business to Owens-Corning and contributed the remaining 50% to the
joint venture. The Company received proceeds of $4,500 and recognized a gain of
$1,541 from the sale.
62
<PAGE>
Deferred business acquisition costs consists of certain transaction-related
costs incurred in connection with the acquisition of the Ciba Composites
Business through December 31, 1995. Such costs will be included in the
allocation of the total purchase price to the net assets acquired as of the
acquisition date, in accordance with the provisions of Accounting Principles
Board Opinion No. 16.
Debt financing costs are deferred and amortized over the life of the
related debt. All debt financing costs as of December 31, 1995 relate to debt
obligations that were extinguished on February 29, 1996 with proceeds from the
Senior Secured Credit Facility. Accordingly, the unamortized balance of such
costs will be written off by a charge to "interest expense" during the first
quarter of 1996.
NOTE 9 -- DIC-HEXCEL LIMITED
The Company owns an equity interest in DIC-Hexcel Limited, a joint venture
with Dainippon Ink and Chemicals, Inc. ("DIC"). The joint venture was formed in
1990 for the production and sale of Nomex honeycomb, advanced composites and
decorative laminates for the Japanese market. The joint venture owns and
operates a manufacturing facility in Komatsu, Japan.
Under the terms of the original joint venture agreement, DIC agreed to
guarantee all bank debt incurred by this venture. In turn, the Company provided
an undertaking that in the event the joint venture went into liquidation the
Company would reimburse DIC for 50% of all guaranteed bank loans, net of any
proceeds from the sale of the venture's assets. During 1994, the economic
viability of this joint venture became questionable, and the cost of product
qualification efforts and the attendant lack of revenues were resulting in
negative cash flows. During the third quarter of 1994, DIC proposed to
liquidate the joint venture. The Company responded with a proposal to
restructure the joint venture, subject to various conditions, which DIC agreed
to consider. Under either proposal, the Company would retain responsibility for
a portion of the joint venture's guaranteed bank debt. Accordingly, the Company
recorded an $8,000 provision in the third quarter of 1994 to reflect the
estimated cost of restructuring or liquidating DIC-Hexcel Limited. This
provision has been included in "other income (expenses), net" in the 1994
consolidated statement of operations, and the corresponding liability has been
included in "liabilities subject to disposition in bankruptcy reorganization" in
the consolidated balance sheet as of December 31, 1994.
On February 20, 1995, Hexcel and DIC entered into an amendment to the
original joint venture agreements which provided additional funding to permit
DIC-Hexcel Limited to complete its product qualification efforts and limited the
Company's potential liability for the venture's bank debt guaranteed by DIC to
$9,000. Under the terms of the amendment, the Company and DIC each agreed to
contribute $4,500 in cash to the venture, payable in installments of $1,438 in
the first quarter of 1995 and $438 in each of the next seven quarters. It was
agreed that such cash contributions by the Company would reduce pro-rata its
potential liability of $9,000. The amendment also provided, after taking
account to the transactions contemplated thereunder, for a reduction in the
Company's equity interest in DIC-Hexcel Limited to approximately 42% with a
corresponding increase in DIC's equity interest. After December 31, 1996, should
demand be made under the loans made to DIC-Hexcel Limited guaranteed by DIC, the
Company will be required to pay 50% of any amount DIC pays on account of its
guarantees, up to a cumulative amount of $4,500. Furthermore, the Company and
DIC agreed that they would discuss and review the prospects of the venture and
its future financing during the second half of 1996. During this period both
DIC and the Company each have the right to request the liquidation of DIC-Hexcel
Limited. If such right is exercised, the Company will be required to make
payment of the remaining contingent liability of up to $4,500. If such
liquidation right is exercise by either party, it is not anticipated that
payment would be required prior to January 1997.
63
<PAGE>
Management believes that the $8,000 provision recorded in the third quarter
of 1994 remains the best estimate of the Company's total probable liability
under the amended joint venture agreement, based on the terms of that agreement
and the projected future operating results of DIC-Hexcel Limited. The Company
contributed $2,750 of cash to the joint venture during 1995, reducing the
remaining probable liability to $5,250 as of December 31, 1995. Of this amount,
$1,750 has been included in "accrued liabilities" and $3,500 has been included
in "deferred liabilities" in the consolidated balance sheet as of December 31,
1995 (see Note 17).
NOTE 10 -- NOTES PAYABLE
Notes payable and capital lease obligations as of December 31, 1995 and
1994 were:
<TABLE>
<CAPTION>
1995
UNAUDITED
PRO FORMA
(SEE NOTE 3) 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Senior Secured Credit Facility $ 74,605 -- --
Revolving Credit Facility -- $ 30,091 --
European credit facilities 1,692 17,806 $ 18,128
Debtor-in-possession credit facility -- -- 4,189
Prepetition credit facility -- -- 12,000
Senior Subordinated Notes payable to Ciba-Geigy 26,300 -- --
10.12% senior notes, originally due 1998 -- -- 30,000
7% convertible subordinated debentures, due 2011 25,625 25,625 25,625
Obligations under IDRB variable rate demand notes,
due through 2024, net 11,990 11,990 13,310
Capital lease obligations (see Note 11) 3,217 3,217 3,234
Various notes payable, due through 2007 1,715 1,715 3,053
- -----------------------------------------------------------------------------------------------------------------
Total notes payable and capital lease obligations 145,144 90,144 109,539
Less amount subject to disposition in bankruptcy
reorganization -- -- (80,815)
- -----------------------------------------------------------------------------------------------------------------
Total notes payable and capital lease obligations, net $ 145,144 $ 90,144 $ 28,724
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Notes payable and current maturities of long-term
liabilities, net $ 1,802 $ 1,802 $ 12,720
Long-term notes payable and capital lease
obligations, net 143,342 88,342 16,004
- -----------------------------------------------------------------------------------------------------------------
Total notes payable and capital lease obligations, net $ 145,144 $ 90,144 $ 28,724
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
SENIOR SECURED CREDIT FACILITY
In connection with the acquisition of the Ciba Composites Business, Hexcel
obtained the Senior Secured Credit Facility on February 29, 1996. The Senior
Secured Credit Facility is a three-year revolving credit facility of up to
$175,000 which is available to: (a) fund the $25,000 cash component of the
purchase price paid for the Ciba Composites Business; (b) refinance outstanding
indebtedness under certain U.S. and European credit facilities; and (c) provide
for the ongoing working capital and other financing requirements of the Company,
including consolidation activities, on a worldwide basis. The Senior Secured
Credit Facility replaces the Revolving Credit Facility which was obtained on
February 9, 1995, in connection with Hexcel's Reorganization Plan, as well as
certain European credit facilities.
64
<PAGE>
Interest on outstanding borrowings under the Senior Secured Credit Facility
is computed at an annual rate of 0.4% in excess of the applicable London
interbank rate or, at the option of Hexcel, the base rate of the administrative
agent for the lenders. In addition, the Senior Secured Credit Facility is
subject to a commitment fee of approximately 0.2% per annum on the unused
portion of the facility and a letter of credit fee of up to 0.5% per annum on
the outstanding face amount of letters of credit. The Company also paid one-
time arrangement, syndication and closing fees totaling $869, as well as certain
other costs and expenses related to the implementation of the Senior Secured
Credit Facility.
The Senior Secured Credit Facility is secured by a pledge of stock of
certain of Hexcel's subsidiaries, and is also guaranteed by the Company and
certain of its subsidiaries. In addition, the Company is subject to various
financial covenants and restrictions under the Senior Secured Credit Facility,
including minimum levels of tangible net worth and fixed charge coverage, and
maximum levels of debt to earnings before interest, taxes, depreciation and
amortization. The Senior Secured Credit Facility also imposes certain
restrictions on incurring additional indebtedness, and generally prohibits the
Company from paying dividends or redeeming capital stock.
In addition to providing for typical events of default, including an event
of default resulting from a "change in control" (as defined) of the Company, the
Senior Secured Credit Facility provides that an event of default would occur if,
under certain circumstances, Ciba: (a) ceases to hold, directly or indirectly
through one or more wholly-owned subsidiaries, 100% of the outstanding principal
amount of the Senior Subordinated Notes, or (b) ceases to beneficially own,
directly or indirectly, at least 40% of Hexcel's voting stock. In light of the
foregoing, the Company and Ciba entered into a Retention Agreement, dated as of
February 29, 1996, pursuant to which Ciba agreed, subject to the limitations set
forth therein, to: (a) hold directly or indirectly through one or more wholly-
owned subsidiaries, 100% of the outstanding principal amount of the Senior
Subordinated Notes, and (b) beneficially own, directly or indirectly, at least
40% of the Company's voting stock.
REVOLVING CREDIT FACILITY
The Revolving Credit Facility, which replaced the Debtor-in-possession
credit facility on February 9, 1995, was replaced by the Senior Secured Credit
Facility on February 29, 1996.
EUROPEAN CREDIT FACILITIES
Certain European credit facilities were replaced by the Senior Secured
Credit Facility on February 29, 1996.
SENIOR SUBORDINATED NOTES PAYABLE TO CIBA-GEIGY
In connection with the acquisition of the Ciba Composites Business, Hexcel
has undertaken to deliver to Ciba and/or one or more of its subsidiaries the
Senior Subordinated Notes. The Senior Subordinated Notes, which will be issued
following the completion of certain post-closing adjustment procedures
contemplated by the Strategic Alliance Agreement, will be general unsecured
obligations of the Company in an aggregate principal amount of approximately
$43,000, subject to certain adjustments. The actual aggregate principal amount
of the Senior Subordinated Notes to be issued may be higher or lower than
$43,000, because the adjustments required under the Strategic Alliance Agreement
to reflect changes in working capital and certain other items as of February 29,
1996 have not yet been determined. (The pro forma aggregate principal amount of
the Senior Subordinated Notes as of December 31, 1995 was $27,400, and the pro
forma estimated fair value of the Senior Subordinated Notes on that date was
$26,300. See Note 3.)
The Senior Subordinated Notes will bear interest for three years at a rate
of 7.5% per annum, payable semiannually, from February 29, 1996. The interest
rate will increase to 10.5% per annum on the third anniversary of the
acquisition of the Ciba Composites Business, and by an additional 0.5% per year
65
<PAGE>
thereafter until the Senior Subordinated Notes mature in the year 2003. The
payment of principal and interest on the Senior Subordinated Notes will be
subordinate to the Senior Secured Credit Facility.
The Senior Subordinated Notes will be callable, in whole or in part, at the
option of Hexcel at any time without penalty, and the Company will not be
required to make mandatory redemption or sinking fund payments. Under certain
circumstances, upon a "change of control" of the Company, as defined in the
indenture governing the Senior Subordinated Notes, the holders of the Senior
Subordinated Notes (except, under certain circumstances, Ciba) will have the
right to cause the Company to repurchase all or any part of the Senior
Subordinated Notes at a price equal to 101% of the principal amount to be
repurchased plus accrued interest. Under such indenture, the Company will be
subject to various restrictions, including restrictions on incurring additional
indebtedness, paying dividends and redeeming capital stock.
7% CONVERTIBLE SUBORDINATED DEBENTURES
The 7% convertible subordinated debentures were subject to disposition in
bankruptcy reorganization, and were reinstated on February 9, 1995, pursuant to
the Reorganization Plan. These debentures are redeemable by the Company under
certain provisions, although any such redemption is restricted by the terms of
the Senior Secured Credit Facility. Mandatory redemption is scheduled to begin
in 2002 through annual sinking fund requirements. The debentures are
convertible prior to maturity into common stock of the Company at $30.72 per
share, subject to adjustment under certain conditions.
OBLIGATIONS UNDER IDRB VARIABLE RATE DEMAND NOTES
Hexcel has various industrial development revenue bonds ("IDRBs")
outstanding, guaranteed by bank letters of credit for fees of 0.5%. These IDRBs
were subject to disposition in bankruptcy reorganization, and were reinstated on
February 9, 1995, pursuant to the Reorganization Plan. The letters of credit
which guarantee the IDRBs were also reinstated, in accordance with the terms of
an amended reimbursement agreement (the "Reimbursement Agreement") with the
issuing bank, and extended until December 31, 1998. The Reimbursement Agreement
originally provided that, commencing April 1, 1995 and every three months
thereafter for the duration of the agreement, the Company would either redeem
$600 of the guaranteed IDRBs, obtain a $600 letter of credit in favor of the
issuing bank, or deposit $600 into a sinking fund in which the issuing bank
and/or the trustees for the IDRBs will hold a first priority security interest.
However, these provisions were eliminated by an amendment to the Reimbursement
Agreement dated February 29, 1996. This amendment, which was agreed to by the
issuing bank in connection with the Company's acquisition of the Ciba Composites
Business, also eliminated certain financial covenants and other restrictions
previously contained in the Reimbursement Agreement. The interest rates on the
IDRBs are variable and averaged 6.2% in 1995, 3.9% in 1994 and 2.5% in 1993.
On November 1, 1994, Hexcel sold the property it owned in the City of
Industry, California for $2,600, which approximated net book value. Under the
terms of the sales agreement, the buyer paid the Company $260 in cash and
assumed responsibility for $2,340 of the outstanding principal of a $4,900 IDRB
related to the property. As of December 31, 1995, the outstanding balance of
the IDRB had been reduced to $4,700, of which $2,160 was an assumed obligation
of the buyer. The Company is contingently liable for that portion of the IDRB
assumed by the buyer, in the event the buyer should default on assumed payment
obligations.
INSTALLMENTS DUE ON NOTES PAYABLE
Excluding obligations extinguished with proceeds from the Senior Secured
Credit Facility, installments due on long-term notes payable are $1,489 in 1996,
$267 in 1997 and $38,966 in years after
66
<PAGE>
the year 2000. The Senior Secured Credit Facility, which was used to refinance
long-term debt obligations totaling $46,205 as of December 31, 1995, expires in
1999.
AGGREGATE FAIR VALUE OF LONG-TERM DEBT
Management believes that the aggregate fair value of Hexcel's long-term
debt, excluding the 7% convertible subordinated debentures, approximates the
aggregate book value, as substantially all such debt is comprised of variable-
rate obligations. However, there can be no assurance that the aggregate fair
value of the Company's long-term debt will not materially vary from the
aggregate book value. The fair value of the 7% convertible subordinated
debentures is estimated on the basis of quoted market prices, although trading
in the debentures is limited and may not reflect fair value. The estimated fair
value of all of the outstanding debentures was $21,781 and $15,888 as of
December 31, 1995 and 1994, respectively.
INTEREST PAYMENTS
Interest payments were $8,345 in 1995, $3,909 in 1994 and $8,802 in 1993.
Hexcel was legally prohibited from paying interest on most prepetition debt
obligations in 1994.
NOTE 11 -- LEASING ARRANGEMENTS
Assets, accumulated depreciation and related liability balances under
capital leasing arrangements as of December 31, 1995 and 1994 were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Property, plant and equipment $ 7,205 $ 6,734
Less accumulated depreciation (2,611) (2,246)
- --------------------------------------------------------------------------------
Net property, plant and equipment $ 4,594 $ 4,488
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Capital lease obligations $ 3,217 $ 3,234
Less current maturities (313) (410)
- --------------------------------------------------------------------------------
Long-term capital lease obligations, net $ 2,904 $ 2,824
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
Certain sales and administrative offices, data processing equipment, and
manufacturing facilities are leased under operating leases. Rental expenses
under operating leases were $2,871 in 1995, $3,675 in 1994 and $3,530 in 1993.
Future minimum lease payments as of December 31, 1995 were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Type of Lease
---------------------------
Payable during years ending December 31: Capital Operating
- --------------------------------------------------------------------------------
<S> <C> <C>
1996 $ 675 $ 2,520
1997 675 1,975
1998 675 1,327
1999 675 1,078
2000 582 737
2001 and thereafter 2,267 2,147
- --------------------------------------------------------------------------------
Total minimum lease payments $ 5,549 $ 9,784
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
Total minimum capital lease payments include $2,332 of imputed interest.
67
<PAGE>
NOTE 12 -- ACCRUED RESTRUCTURING LIABILITIES
In December 1992, Hexcel initiated a worldwide restructuring program
designed to improve facility utilization and determine the proper workforce
requirements to support projected reduced levels of business in 1993 and beyond.
The Company recorded a charge for this program of $23,000 in the fourth quarter
of 1992.
In April 1993, Hexcel announced the closing of the Graham, Texas
manufacturing facility and the consolidation of Graham operations into other
plants. The estimated costs of this closure were included in the 1992
restructuring charge. The Graham closure was substantially completed in 1994.
In September 1993, Hexcel announced plans to significantly expand the
restructuring program in response to the expected further decline in commercial
and military aerospace markets. Accordingly, the Company recorded a charge of
$44,000 in the third quarter of 1993. This expansion included deeper cuts in
overhead and further consolidation of facilities in the United States and
Europe. During the fourth quarter of 1993, an additional charge of $2,600 was
recorded in connection with the expanded restructuring program. The 1993 and
1992 restructuring charges included approximately $34,000 of non-cash write-
downs related to facility closures and the impairment of certain assets due to
declining sales and the changed business environment.
In the fourth quarter of 1994, Hexcel sold the Chandler, Arizona
manufacturing facility and certain related assets and technology (see Note 5).
Together with the closure of the Graham facility, this completed the reduction
in honeycomb production capacity contemplated by the expanded restructuring
program. The Company transferred certain assets and production processes
located at the Chandler facility, which were not included in the sale, to the
Company's facility in Casa Grande, Arizona. The estimated costs associated with
this transfer were included in the restructuring charge recorded in the third
quarter of 1993.
The total of $69,600 in restructuring charges taken in 1992 and 1993 and
the remaining balances of accrued restructuring charges as of December 31, 1995
and 1994 were:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Accrued Accrued
1992 & 1993 Restructuring Restructuring
Restructuring Liabilities at Liabilities at
Expenses 12/31/95 12/31/94
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Estimated costs to close and relocate facilities:
Asset write-downs $ 19,500 $ 500 $ 2,230
Cash costs, net of expected sales proceeds 11,000 1,190 2,835
Estimated employee severance costs (excluding
severance related to the closure of facilities) 15,900 260 1,100
Asset write-downs due to changed business conditions 14,700 -- --
Estimated cash costs of various other
restructuring actions 8,500 937 5,000
- ------------------------------------------------------------------------------------------------------------------------------
$ 69,600 $ 2,887 $ 11,165
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The decrease in accrued restructuring liabilities during 1995 is primarily
attributable to the consolidation of honeycomb manufacturing operations in
connection with the disposal of the Chandler facility, as well as severance
payments and implementation of a new management information system. The
consolidation of honeycomb operations reflected in the 1992 and 1993
restructuring charges is substantially complete, while implementation of the
information system will continue through 1996.
68
<PAGE>
NOTE 13 -- LIABILITIES SUBJECT TO DISPOSITION IN BANKRUPTCY REORGANIZATION
Liabilities subject to disposition in bankruptcy reorganization as of
December 31, 1994 were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1994
- --------------------------------------------------------------------------------
<S> <C>
Accounts payable $ 23,271
Accrued liabilities, including interest 33,691
Notes payable and capital lease obligations (see Note 10) 80,815
- --------------------------------------------------------------------------------
Total liabilities subject to disposition in bankruptcy
reorganization $ 137,777
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Current liabilities subject to disposition in bankruptcy
reorganization $ 97,025
Long-term liabilities subject to disposition in bankruptcy
reorganization 40,752
- --------------------------------------------------------------------------------
Total liabilities subject to disposition in bankruptcy
reorganization $ 137,777
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The Reorganization Plan provided for the reinstatement or payment in full,
with interest, of all allowed claims, including prepetition accounts payable and
notes payable. The total of all claims reinstated or paid, less the portion
representing accrued interest for the period from January 1 to February 9, 1995,
has been reflected as "liabilities subject to disposition in bankruptcy
reorganization" in the consolidated balance sheet as of December 31, 1994.
NOTE 14 -- RETIREMENT PLANS
The Company has various retirement and profit sharing plans covering
substantially all U.S. employees and certain European employees. The net cost
of these plans was $2,768 in 1995, $2,443 in 1994 and $2,330 in 1993.
In the United States, the Company maintains a defined contribution plan and
a defined benefit pension plan. The defined contribution plan is available to
substantially all U.S. employees, and is comprised of a 401(k) savings plan and
a profit sharing plan. Under the 401(k) savings plan, the Company makes
matching contributions equal to 50% of the contributions of the employees, not
to exceed 3% of employee compensation. The defined benefit pension plan is a
career average pension plan covering substantially all U.S. hourly employees.
Effective January 1, 1996, participation in the defined benefit pension plan was
extended to U.S. salaried employees as well. Benefits are based on years of
service and the annual compensation of the employee, and the Company's funding
policy is to contribute the minimum amount required by applicable regulations.
The Company also maintains a defined benefit pension plan for employees in
the United Kingdom, and defined benefit retirement plans for certain senior
executives and directors. The Company's European subsidiaries, except for those
in the United Kingdom, participate in government retirement plans which cover
all employees of those subsidiaries.
69
<PAGE>
Contributions to the 401(k) savings plan were $1,290 for 1995, $1,039 for
1994 and $1,130 for 1993. There were no contributions to the profit sharing
plan for 1995, 1994 or 1993. The net cost of the Company's defined benefit
pension and retirement plans for the years ended December 31, 1995, 1994 and
1993 consisted of:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 661 $ 753 $ 749
Interest cost on projected benefit obligation 660 706 713
Return on assets - actual (1,103) 33 (1,385)
Net amortization and deferral 1,260 (88) 1,123
- --------------------------------------------------------------------------------
Net periodic pension cost $ 1,478 $1,404 $ 1,200
- --------------------------------------------------------------------------------
</TABLE>
Assumptions used in the accounting for these defined benefit and retirement
plans were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.0% 8.0% 7.0%
Rate of increase in compensation 4.0% 4.0% 4.0%
Expected long-term rate of return on plan assets 9.5% 9.5% 9.5%
- --------------------------------------------------------------------------------
</TABLE>
The funded status and amounts recognized for the defined benefit pension
and retirement plans as of December 31, 1995 and 1994 were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation $ 8,047 $ 6,688
Non-vested benefit obligation 1,281 1,022
- --------------------------------------------------------------------------------
Accumulated benefit obligation $ 9,328 $ 7,710
- --------------------------------------------------------------------------------
Projected benefit obligation for service rendered to date $10,985 $ 8,658
Less plan assets at fair value, primarily listed stocks
and insurance contracts (5,117) (3,128)
- --------------------------------------------------------------------------------
Projected benefit obligation in excess of plan assets 5,868 5,530
Unrecognized net loss (2,176) (814)
Unrecognized prior service costs (240) (285)
Unrecognized net transition obligation being recognized
over 15 years (255) (298)
Adjustment required to recognize minimum pension liability 1,014 449
- --------------------------------------------------------------------------------
Defined benefit pension and retirement liability 4,211 4,582
Less current portion of pension and retirement liability (1,780) (1,762)
- --------------------------------------------------------------------------------
Deferred pension and retirement liability (see Note 17) $ 2,431 $ 2,820
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
NOTE 15 -- POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
The Company provides certain postretirement health care and life insurance
benefits to eligible retirees. Substantially all U.S. employees hired on or
before December 31, 1995 who retire on or after age 58 after rendering at least
15 years of service are eligible for benefits. Benefits consist of coverage of
up to 50% of the annual cost of certain health insurance plans, as well as
annual life insurance coverage equal to 65% of the final base pay of the retiree
until the age of 70. Upon reaching 70 years of age, life insurance coverage is
reduced.
70
<PAGE>
The Company funds postretirement health care and life insurance benefit
costs on a pay-as-you-go basis and, for 1995, 1994 and 1993, made benefit
payments of $583, $423 and $576, respectively. Net defined postretirement
benefit costs for the years ended December 31, 1995, 1994 and 1993 were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 279 $ 389 $ 400
Interest cost on accumulated postretirement
benefit obligation 780 915 1,100
Net amortization and deferral (201) -- --
- --------------------------------------------------------------------------------
Net periodic postretirement benefit cost $ 858 $1,304 $1,500
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
Defined postretirement benefit liabilities as of December 31, 1995 and 1994
were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 6,766 $ 7,661
Fully eligible active plan participants 1,264 985
Other active plan participants 3,726 3,211
- --------------------------------------------------------------------------------
11,756 11,857
Unrecognized net gain 2,778 2,402
- --------------------------------------------------------------------------------
Defined postretirement benefit liability 14,534 14,259
Less current portion of postretirement benefit liability (583) (651)
- --------------------------------------------------------------------------------
Deferred postretirement benefit liability (see Note 17) $13,951 $13,608
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
Two health care cost trend rates were used in measuring the accumulated
postretirement benefit obligation. The assumed indemnity health care cost trend
in 1996 was 11.0% for participants less than 65 years of age and 7.0% for
participants 65 years of age and older, gradually declining to 6.0% for both age
groups in the year 2001. The assumed HMO health care cost trend in 1996 was
8.0% for participants less than 65 years of age and 5.0% for participants 65
years of age and older, gradually declining to 6.0% and 5.0%, respectively, in
the year 1998.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.0% in 1995 and 8.0% in 1994. The rate
of increase in compensation used in determining the obligation was 4.0% in both
1995 and 1994.
If the health care cost trend rate assumptions were increased by 1.0%, the
accumulated postretirement benefit obligation as of December 31, 1995 would be
increased by 3.6%. The effect of this change on the sum of the service cost and
interest cost would be an increase of 3.0%.
Effective January 1, 1996, Hexcel amended its postretirement benefit
program to eliminate any benefits for employees hired after December 31, 1995
(other than certain former employees of the Ciba Composites Business hired on
February 29, 1996), and to limit health care benefit coverage to selected health
insurance plans for the majority of active employees hired on or before December
31, 1995. These amendments are expected to reduce the Company's accumulated
postretirement benefit obligation by approximately $1,600, which will be
recognized as a reduction in future benefit expense on a straight line basis
over 14 years.
71
<PAGE>
NOTE 16 -- INCOME TAXES
NET OPERATING LOSS CARRYFORWARDS
As of December 31, 1995, the Company had net operating loss ("NOL")
carryforwards for U.S. federal income tax purposes of approximately $65,000 and
net operating loss carryforwards for international income tax purposes of
approximately $5,000. The U.S. NOL carryforwards, which are available to offset
future taxable income, expire at various dates through the year 2010.
As a result of the ownership change which occurred in connection with the
Reorganization Plan (see Note 4), a limitation on the utilization of NOL
carryforwards in the U.S. was created. This utilization limitation, which
applies to loss carryforwards generated prior to February 9, 1995, is estimated
to be approximately $5,000 per year. As a result of the acquisition of the Ciba
Composites Business (see Notes 2 and 3), a second successive limitation on the
utilization of NOL carryforwards in the U.S. has been created. This utilization
limitation, which applies to loss carryforwards generated between February 9,
1995 and February 29, 1996, is estimated to be approximately $12,000 per year.
Under U.S. federal tax law, NOL carryforwards are utilized in the order of
successive limitations. Consequently, the NOL carryforwards subject to the
first annual limitation may be utilized to reduce future taxable income of up to
$5,000 per year, and the NOL carryforwards subject to the second annual
limitation may then be utilized to reduce future taxable income of up to $12,000
per year. The aggregate utilization of NOL carryforwards subject to both
limitations may not exceed $12,000 annually.
PROVISION FOR INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," effective January 1, 1993. The cumulative effect
of adopting SFAS 109 was the recognition of $4,500 of income, which was recorded
in the first quarter of 1993. In connection with the adoption of SFAS 109, the
Company established a valuation allowance of $4,693 against its deferred income
tax assets.
During 1993, substantial uncertainty developed as to the realization of
Hexcel's deferred income tax assets. As a result, the Company increased the
valuation allowance against its deferred income tax assets, reducing the
recorded value of those assets to zero. The increase to the valuation allowance
reflected the Company's assessment that the bankruptcy reorganization
proceedings of Hexcel and substantial operating losses had jeopardized the
realization of deferred income tax assets.
In 1994 and 1995, Hexcel continued to reserve for the income tax assets
generated by the pre-tax losses of certain subsidiaries. As a result of
settlements of various tax audits, state income taxes and taxable income for
certain European subsidiaries, the Company recorded a provision for income taxes
of $3,586 in 1994. As a result of state income taxes and taxable income for
certain European subsidiaries, the Company recorded a provision for income taxes
of $3,313 in 1995.
72
<PAGE>
Income (loss) before income taxes and the tax provision for income taxes
from continuing operations for the years ended December 31, 1995, 1994 and 1993
were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) before income taxes:
United States $(1,027) $(24,745) $(58,554)
International 7,541 251 (15,294)
- --------------------------------------------------------------------------------
Total income (loss) before income taxes $ 6,514 $(24,494) $(73,848)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Benefit (provision) for income taxes:
Current:
U.S. $ (197) $ (85) $ (243)
International (3,445) 108 (976)
- --------------------------------------------------------------------------------
Current benefit (provision) for income taxes (3,642) 23 (1,219)
- --------------------------------------------------------------------------------
Deferred:
U.S. -- (2,226) (6,590)
International 329 (1,383) 1,785
- --------------------------------------------------------------------------------
Deferred benefit (provision) for income taxes 329 (3,609) (4,805)
- --------------------------------------------------------------------------------
Total provision for income taxes $ (3,313) $ (3,586) $ (6,024)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
A reconciliation of the tax provision to the U.S. federal statutory income
tax rate of 34% for the years ended December 31, 1995, 1994 and 1993 was:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Benefit (provision) at U.S. federal statutory
rate $(2,215) $ 8,328 $25,108
U.S. state taxes, less federal tax benefit 254 (244) (104)
Impact of different international tax rates,
adjustments to income tax accruals and other (492) (3,837) 5,471
Valuation allowance (860) (7,833) (36,499)
- --------------------------------------------------------------------------------
Total provision for income taxes $(3,313) $(3,586) $(6,024)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The Company paid income taxes of $3,864 in 1995, $253 in 1994 and $203 in
1993. The Company has made no U.S. income tax provision for approximately
$27,000 of undistributed earnings of international subsidiaries as of December
31, 1995. Such earnings are considered to be permanently reinvested. The
additional U.S. income tax on these earnings, if repatriated, would be offset in
part by foreign tax credits.
DEFERRED INCOME TAXES
Deferred income taxes result from temporary differences between the
recognition of items for income tax purposes and financial reporting purposes.
Principal temporary differences as of December 31, 1995 and 1994 were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Accelerated depreciation and amortization $ 10,473 $ 15,443
Accrued restructuring charges (655) (14,382)
Net operating loss carryforwards (27,562) (10,880)
Reserves and other, net (30,309) (37,045)
Valuation allowance 50,006 49,146
- --------------------------------------------------------------------------------
Deferred tax liability (see Note 17) $ 1,953 $ 2,282
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
73
<PAGE>
NOTE 17 -- DEFERRED LIABILITIES
Deferred liabilities as of December 31, 1995 and 1994 were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred DIC-Hexcel liability (see Note 9) $ 3,500 --
Deferred pension and retirement liability (see Note 14) 2,431 $ 2,820
Deferred postretirement benefit liability (see Note 15) 13,951 13,608
Deferred tax liability (see Note 16) 1,953 2,282
Other 5,566 2,569
- --------------------------------------------------------------------------------
Deferred liabilities $27,401 $21,279
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
NOTE 18 -- SHAREHOLDERS' EQUITY AND INCENTIVE STOCK PLAN
SHAREHOLDERS' EQUITY
On February 21, 1996, Hexcel's shareholders approved an amendment to the
Company's Certificate of Incorporation increasing the number of authorized
shares of Hexcel common stock from 40,000 to 100,000. On February 29, 1996, the
Company issued 18,022 shares of Hexcel common stock to Ciba in connection with
the acquisition of the Ciba Composites Business. As a result, Ciba owned 49.9%
of the total number of shares of Hexcel common stock issued and outstanding as
of that date.
There are 1,500 shares of Hexcel preferred stock authorized for issuance,
but no such shares have been issued.
Hexcel did not declare or pay any dividends in 1995, 1994 or 1993. The
Board of Directors suspended dividend payments beginning in 1993, and such
payments are generally prohibited by the Senior Secured Credit Facility.
INCENTIVE STOCK PLAN
On February 21, 1996, Hexcel's shareholders approved the Incentive Stock
Plan. The Incentive Stock Plan authorizes an aggregate of 3,000 shares of
Hexcel common stock for use by the Company in providing a variety of stock-based
awards to eligible employees, officers, directors and consultants. The
Incentive Stock Plan provides for grants of stock options, stock appreciation
rights, restricted shares, and other stock-based awards.
74
<PAGE>
Stock option data for the two years ended December 31, 1995 were:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
NUMBER OPTION PRICE EXPIRATION
OF SHARES PER SHARE DATES
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding at January 1, 1994 534 $ 7.56 - 32.06 1998 - 2003
Options granted -- -- --
Options exercised -- -- --
Options expired or canceled (66) $ 10.44 - 32.06 1998 - 2003
- ---------------------------------------------------------------------------------------------------------------------
Options outstanding at December 31, 1994 468 $ 7.56 - 32.06 1998 - 2003
Options granted 787 $ 4.75 - 6.38 2000 - 2005
Options exercised (1) $ 7.56 2000
Options expired or canceled (240) $ 6.38 - 32.06 1998 - 2003
- ---------------------------------------------------------------------------------------------------------------------
Options outstanding at December 31, 1995 1,014 $ 4.75 - 32.06 1998 - 2005
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Options exercisable at December 31, 1995 251 $ 9.13 - 32.06 1998 - 2003
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The options granted during 1995 become exercisable in increments in 1996
and 1997. An additional 1,115 options primarily at exercise prices of $12.50
per share were granted on February 29 and March 1, 1996. Included in this total
are 228 short-term options which expire 90 days after the grant date. The
holders of the short-term options are entitled to receive two additional
"reload" options for each short-term option exercised. Consequently, as many as
456 additional options could be granted during the 90 day period beginning March
1, 1996, in connection with the exercise of short-term options. Except for the
short-term options, the options granted on February 29 and March 1, 1996 become
exercisable in increments through 1999, and expire between 2001 and 2006.
As of December 31, 1995 and 1994, the Company had outstanding a total of 10
and 24 shares of restricted stock, respectively, which vest in increments
through 1997. The holders of these shares are entitled to vote. An additional
269 shares of performance accelerated restricted stock ("PARS") were granted in
March 1996. The PARS vest in increments through 2003, subject to accelerated
vesting under certain circumstances.
NOTE 19 -- CONTINGENCIES
Hexcel is involved in litigation, investigations and claims arising out of
the conduct of its business, including those relating to government contracts,
commercial transactions, and environmental, health and safety matters. The
Company estimates its liabilities resulting from such matters based on a variety
of factors, including outstanding legal claims and proposed settlements,
assessments by internal and external counsel of pending or threatened
litigation, and assessments by environmental engineers and consultants of
potential environmental liabilities and remediation costs. Such estimates
incorporate insignificant amounts for probable recoveries under applicable
insurance policies but exclude counterclaims against other third parties. Such
estimates are not discounted to reflect the time value of money due to the
uncertainty in estimating the timing of the expenditures, which may extend over
several years. Although it is impossible to determine the level of future
expenditures for legal, environmental and related matters with any degree of
certainty, it is management's opinion, based on available information, that it
is unlikely that these matters, individually or in the aggregate, will have a
material adverse effect on the consolidated financial position or results of
operations of the Company.
U.S. GOVERNMENT CLAIMS
Hexcel, as a defense subcontractor, is subject to U.S. government audits
and reviews of negotiations, performance, cost classifications, accounting and
general practices relating to government contracts. The Defense Contract Audit
Agency ("DCAA") reviews cost accounting and business practices of government
75
<PAGE>
contractors and subcontractors including the Company. The Company has been
engaged in discussions on a number of cost accounting issues which could result
in claims by the government. Some of these issues have already been resolved.
As part of these reviews, the DCAA has alleged that Hexcel improperly
included certain land lease costs in its indirect rates at the Chandler, Arizona
facility (the "Chandler Land Lease") and that, as a result, the Company's
subcontracts had been overpriced in an amount of approximately $1,000. The
Company has formally responded to the DCAA that it strongly disagrees with these
allegations. In February 1996, the Company received a letter from the United
States Attorney's Office, stating that it was considering filing an action
against the Company for violation of the civil False Claims Act ("FCA") based
upon the inclusion in the indirect rates of the Chandler Land Lease costs.
While the Company does not agree that there was any violation of the FCA, if the
U.S. government elects to pursue such an action and were it to prevail, it would
be entitled to three times the actual damages claimed plus penalties of between
$5 and $10 for each false claim; the number of alleged false claims could be
significant.
LEGAL CLAIMS AND PROCEEDINGS
In December 1988, Lockheed employees working with epoxy resins and
composites on classified programs filed suit against Lockheed and its suppliers
(including Hexcel) claiming various injuries as a result of exposure to these
products. Plaintiffs have filed for punitive damages which may be uninsured.
The first trial of the cases of 15 pilot plaintiffs resulted in a mistrial and a
retrial resulted in the entry of judgment in favor of the plaintiffs. The
Company did not participate in the trial due to the automatic stay resulting
from the Chapter 11 filing. Some of these claims were discharged as a result of
the plaintiffs' failure to file claims in Hexcel's Chapter 11 case. As to the
claims which have not been discharged, the Company has objected to them and
intends to proceed with those objections within the Bankruptcy Court.
Hexcel / MCI, a business unit divested in 1991, performed brazing services
in the manufacture of flexures under subcontract from Ormond which supplied the
flexures to Thiokol. The flexures are used to support a rocket motor housing in
a test stand during actual firing of the rocket. Several flexures cracked under
the dead weight of a rocket motor prior to actual test firing, and Thiokol has
sued Ormond and the Company for the costs of replacing all of the flexures
purchased ($900) (Thiokol Corporation v. Ormond, Hexcel, et al.). The automatic
stay in bankruptcy was lifted in April 1995 and the case was resumed in the
state court in Utah. Discovery is ongoing. There is no insurance coverage
available for an adverse court ruling or negotiated settlement.
In November 1995, Hexcel was notified that Livermore Development
Corporation ("LDC") was asserting a claim for damages arising from Hexcel's
recent notification of its intent to exercise its option to purchase certain
land in Livermore, California. LDC contends that the lease was a disguised
partnership or joint venture agreement between Hexcel and LDC to develop the
property for residential use. Hexcel disputes any such agreement and seeks to
enforce its option to purchase under a written agreement. The parties are in
ongoing negotiations to resolve this claim.
As the result of the acquisition of the Ciba Composites Business in
February 1996, Hexcel assumed certain liabilities including certain legal
proceedings.
ENVIRONMENTAL CLAIMS AND PROCEEDINGS
Hexcel has been named as a potentially responsible party ("PRP") with
respect to several hazardous waste disposal sites that it does not own or
possess which are included on the Environmental Protection Agency's Superfund
National Priority List and/or various state equivalent lists. With respect to
its exposure relating to these sites, the Company believes its responsibility to
be de minimis. A total of 249 claims were filed in the Chapter 11 case with a
face value of over $6.7 billion. These claims were, for the most part,
duplicative as a result of the joint and several liability provisions of
applicable laws and have
76
<PAGE>
been categorized into claims involving 19 sites. Claims involving 8 of the
sites have been settled within the Chapter 11 case. The Company has been named
a PRP with respect to 6 sites for which no claims were filed in the Chapter 11
case; as a result, the Company believes any further claims to be barred. The
balance of the sites and their related claims have been passed through the
bankruptcy. The Company's estimation of its exposure at these sites is de
minimis.
Also, pursuant to the New Jersey Environmental Responsibility and Clean-Up
Act, Hexcel signed an administrative consent order to pay for clean-up of a
manufacturing facility it formerly operated in Lodi, New Jersey. Hexcel has
reserved approximately $2,800 to cover such remaining costs and believes that
actual costs should not exceed the amount which has been reserved. Fine
Organics Corporation, the current owner of the Lodi site and Hexcel's former
chemicals business operated on that site, has asserted that the clean-up costs
will be significantly in excess of that amount. The ultimate cost of
remediation at the Lodi site will depend on developing circumstances.
Fine Organics Corporation filed a proof of claim and an adversary
proceeding in the Bankruptcy Court. The court has disallowed a significant
portion of the claim by denying Fine Organics claim for treble damages and
certain contingent claims. The remaining claims are for prior clean-up costs
incurred by Fine Organics and alleged contractual and tort damages relating to
the original sale of the business and site to Fine Organics totaling
approximately $3,200. This matter is proceeding in the Bankruptcy Court.
In September 1995, Ciba was named as a potentially responsible party with
respect to the removal of drums from a disposal site that it did not own or
possess, known as the Omega Chemical Corporation ("Omega Site"). The Omega Site
is a spent solvent recycling and treatment facility in Whittier, California.
Ciba has previously notified the EPA that it intends to comply with the EPA's
removal requirements and has paid its interim share of such removal costs to
date. This responsibility was assumed by the Company as a result of its
acquisition of the Ciba Composites Business, to the extent the Ciba waste
delivered to the Omega site was from the operations of the Ciba Composites
Business. This matter is under evaluation but is presently believed to be de
minimis.
PRODUCT CLAIMS
In 1993, Hexcel became aware of an aluminum honeycomb sandwich panel
delamination problem with panels produced by its wholly-owned Belgium
subsidiary, Hexcel S.A., and installed in rail cars in France and Spain.
Certain customers have alleged that Hexcel S.A. is responsible for the problem.
The Company and its insurer continue to investigate these claims. The Company
is also working with the customers to repair or replace panels when necessary,
with certain costs to be allocated upon determination of responsibility for the
delamination. While no lawsuit has been filed, two customers in France
requested that a court appoint experts to investigate the claims; to date, the
experts have not reported any conclusions. The Company's primary insurer for
this matter has agreed to fund legal representation and to provide coverage of
the claim to the extent of the policy limit for one year. The Company is
investigating additional insurance coverage. Even if additional insurance
coverage is not available, management believes that, based on available
information, it is unlikely that these claims will have a material adverse
effect on the consolidated financial position or results of operations of the
Company.
NOTE 20 -- RAW MATERIALS; SIGNIFICANT CUSTOMERS; MARKETS
Hexcel purchases most of the raw materials used in production. Several key
materials are available from relatively few sources, and in many cases the cost
of product qualification makes it impractical to develop multiple sources of
supply. The unavailability of these materials, which the Company does not
anticipate, could have a material adverse effect on sales and earnings.
77
<PAGE>
The Boeing Company and Boeing subcontractors accounted for approximately
21% of 1995 sales, 22% of 1994 sales and 21% of 1993 sales. The loss of all or
a significant portion of this business, which Hexcel does not anticipate, could
have a material adverse effect on sales and earnings.
Net sales by market for the years ended December 31, 1995, 1994 and 1993
were:
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
Commercial aerospace 45% 47% 42%
Space and defense 11% 11% 18%
Recreation, general industrial and other 44% 42% 40%
- --------------------------------------------------------------------------------
Net sales 100% 100% 100%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 21 -- BUSINESS SEGMENT DATA
The Company operates within a single business segment: composite
materials, parts and structures. The following table summarizes certain
financial data for continuing operations by geographic area as of
December 31, 1995, 1994, and 1993 and for the years then ended:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales:
United States $ 179,573 $ 171,536 $ 185,261
International 170,665 142,259 125,374
- --------------------------------------------------------------------------------
Consolidated $ 350,238 $ 313,795 $ 310,635
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Income (loss) before income taxes:
United States $ 2,912 $ (21,462) $ (55,660)
International 3,602 (3,032) (18,188)
- --------------------------------------------------------------------------------
Consolidated $ 6,514 $ (24,494) $ (73,848)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Identifiable assets:
United States $ 134,972 $ 149,890 $166,201
International 95,630 90,567 84,954
- --------------------------------------------------------------------------------
Consolidated $ 230,602 $ 240,457 $ 251,155
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Capital expenditures:
United States $ 7,729 $ 6,022 $ 4,694
International 4,415 2,340 1,570
- --------------------------------------------------------------------------------
Consolidated $ 12,144 $ 8,362 $ 6,264
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Depreciation and amortization:
United States $ 6,528 $ 8,455 $ 9,607
International 5,095 5,775 5,273
- --------------------------------------------------------------------------------
Consolidated $ 11,623 $ 14,230 $ 14,880
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
International net sales consist of the net sales of international
subsidiaries, sold primarily in Europe, and U.S. exports. U.S. exports were
$18,902 in 1995, $14,008 in 1994 and $11,889 in 1993.
To compute income (loss) before income taxes, the Company allocated
administrative expenses to International of $3,939 in 1995, $3,283 in 1994 and
$2,894 in 1993.
78
<PAGE>
NOTE 22 -- OTHER INCOME AND EXPENSES, NET
The Company recognized $791 of other income in 1995, including $600 of
income relating to the sale of the Chandler facility and related assets and
technology (see Note 5).
The Company recognized $4,861 of other income in 1994, including $15,900 of
income relating to the Chandler transaction (see Note 5), partially offset by an
$8,000 provision for the estimated cost of restructuring or liquidating DIC-
Hexcel Limited (see Note 9) and a $2,900 provision for bankruptcy claim
adjustments. The provision for bankruptcy claim adjustments resulted from the
reconciliation and settlement of certain claims as well as changes in the
estimate of assumed liabilities.
The Company incurred $12,780 of other expenses in 1993, primarily as a
result of write-downs of certain assets and increases in reserves for warranties
and environmental matters on property previously owned. The impairment of
assets was attributable to bankruptcy reorganization proceedings, changes in
business conditions, and depressed real estate prices on property held for sale.
NOTE 23 -- DISCONTINUED OPERATIONS
The divestiture of Hexcel's discontinued resins business was completed on
October 30, 1995 (see Note 5). The Company recorded a $2,800 provision in 1994
to write down the net assets of the resins business to expected realizable
value, following a $6,000 charge in 1993.
The divestiture of Hexcel's discontinued fine chemicals business was
completed in 1994. The Company recorded a $2,800 provision in 1993 to write
down the net assets of the fine chemicals business to expected realizable value.
Net sales of discontinued operations for the years ended December 31, 1995,
1994 and 1993 were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Resins business $ 6,944 $ 30,691 $ 27,933
Fine chemicals business -- -- 5,704
- --------------------------------------------------------------------------------
Total discontinued operations $ 6,944 $ 30,691 $ 33,637
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
Net assets of the discontinued resins business as of December 31, 1994
were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1994
- --------------------------------------------------------------------------------
<S> <C>
Current assets $ 3,970
Current liabilities (4,591)
Non-current assets 3,621
- --------------------------------------------------------------------------------
Net assets $ 3,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
79
<PAGE>
NOTE 24 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for the years ended December 31, 1995 and 1994 were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995
Net sales $ 85,155 $ 91,023 $ 81,366 $ 92,694
Gross margin 14,795 18,055 15,888 18,352
Income (loss) from continuing
operations (2,369) 1,950 1,561 2,059
Loss from discontinued operations (112) (185) (171) --
Net income (loss) (2,481) 1,765 1,390 2,059
- --------------------------------------------------------------------------------
Net income (loss) per share and
equivalent share:
Primary and fully diluted:
Continuing operations $ (0.27) $ 0.11 $ 0.09 $ 0.11
Discontinued operations (0.01) (0.01) (0.01) --
Net income (loss) (0.28) 0.10 0.08 0.11
- --------------------------------------------------------------------------------
Dividends per share -- -- -- --
Market price:
High $ 6.63 $ 7.25 $ 12.25 $ 11.25
Low 4.25 4.50 7.25 8.25
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1994
Net sales $ 77,682 $ 84,964 $ 74,434 $ 76,715
Gross margin 11,683 14,165 11,601 10,979
Loss from continuing operations (5,325) (4,894) (15,319) (2,542)
Income (loss) from discontinued
operations 301 472 (2,620) (43)
Net loss (5,024) (4,422) (17,939) (2,585)
- --------------------------------------------------------------------------------
Net income (loss) per share and
equivalent share:
Primary and fully diluted:
Continuing operations $ (0.73) $ (0.67) $ (2.09) $ (0.34)
Discontinued operations 0.04 0.06 (0.36) (0.01)
Net loss (0.69) (0.61) (2.45) (0.35)
- --------------------------------------------------------------------------------
Dividends per share -- -- -- --
Market price:
High $ 4.25 $ 4.00 $ 6.00 $ 5.75
Low 2.75 3.00 3.00 4.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
During the third quarter of 1995, the Company recognized other income of
$600 relating to the sale of the Chandler facility and related assets and
technology (see Notes 5 and 22).
During the third quarter of 1994, the Company recorded an $8,000 provision
for the estimated cost of restructuring or liquidating DIC-Hexcel Limited (see
Note 9), and a $2,800 provision to write down the net assets of the discontinued
resins business to expected net realizable value (see Note 23).
During the fourth quarter of 1994, the Company recognized other income of
$15,900 relating to the Chandler transaction (see Notes 5 and 22). In addition,
the Company recorded a total of approximately
80
<PAGE>
$10,800 in expenses for bankruptcy claim adjustments, additional interest on
allowed claims, and the settlement of various tax audits.
81
<PAGE>
Exhibit 3.2(a)
<PAGE>
AMENDMENT TO THE BYLAWS OF HEXCEL CORPORATION
February 29, 1996
RESOLVED, that the second sentence of Section 13(b) of the Bylaws of the
Company be, and it hereby is, amended and restated to read as follows:
"Pursuant thereto it is hereby specified that this Corporation shall
have ten (10) directors."
<PAGE>
Exhibit 10.3(a)
<PAGE>
SECOND RESTATED AND AMENDED
REIMBURSEMENT AGREEMENT
This SECOND RESTATED AND AMENDED REIMBURSEMENT AGREEMENT (this "Agreement")
dated as of February 29, 1996, is made by and between HEXCEL CORPORATION, a
Delaware corporation (the "Company"), and BANQUE NATIONALE DE PARIS, a banking
corporation organized and existing under the laws of The Republic of France,
acting through its San Francisco Branch (the "Bank").
RECITALS
WHEREAS, the Bank has issued those certain Irrevocable Standby Letters of
Credit listed on Exhibit B to this Agreement (the "Bond Letters of Credit")
pursuant to that certain Restated and Amended Reimbursement Agreement, dated as
of February 1, 1995, between the Bank and the Company (the "Prior Reimbursement
Agreement");
WHEREAS, the Company, Hexcel S.A. (Belgium), Hexcel S.A. (Lyon), Brochier
S.A., Hexcel U.K. Ltd. and Composite Materials Limited United Kingdom, as
"Borrowers", the institutions from time to time party thereto as "Lenders"
including the Bank, the institutions from time to time party thereto as "Issuing
Banks" including the Bank, Citibank, N.A., New York Branch, as "U.S.
Administrative Agent", Citibank, N.A., London Branch, as "European
Administrative Agent" and Credit Suisse as "Syndication Agent" have entered into
that certain Credit Agreement, dated as of February 29, 1996 (as amended from
time to time, the "Credit Agreement"), which provides, inter alia, for issuance
by "Issuing Banks" of letters of credit pursuant to the terms of the Credit
Agreement;
WHEREAS, the parties to the Credit Agreement, including the Bank and the
Company, agree that the Bond Letters of Credit shall be deemed issued under and
in accordance with Section 2.04 of the Credit Agreement; and
WHEREAS, the Bank and the Company wish to modify the Prior Reimbursement
Agreement and the obligations of Hexcel thereunder to be consistent with the
terms of the Credit Agreement, except as otherwise expressly provided in this
Agreement;
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NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
Section 1. CERTAIN DEFINED TERMS. As used in this Agreement, including
the preceding recitals, terms defined in Exhibit A hereto shall have the
meanings assigned to such terms in such exhibit. Capitalized terms used in this
Agreement and not defined herein, shall have the meanings assigned to such terms
in the Credit Agreement.
SECTION 2. CREDIT AGREEMENT. Subject to satisfaction of the conditions
precedent to the effectiveness of this Agreement, the Bond Letters of Credit
shall be deemed issued and outstanding pursuant to the Credit Agreement and the
Bank shall be entitled to the rights and benefits of an Issuing Bank under the
Credit Agreement. In case of any conflict or discrepancy between the terms and
provisions of any Bond Letter of Credit, on the one hand, and terms and
provisions of this Agreement or the Credit Agreement, on the other hand, the
terms of the Bond Letter of Credit shall determine the actual meaning of such
Letter of Credit, this Agreement and the Credit Agreement.
Section 3. AMOUNTS AND TERMS OF BOND LETTERS OF CREDIT. The Stated
Amount, Principal Component and Interest Component of each Bond Letter of Credit
as of the Effective Date is as set forth in Exhibit B. The Stated Amount,
Principal Component and Interest Component of each Bond Letter of Credit shall
be reduced and reinstated pursuant to and in accordance with the provisions of
such Bond Letter of Credit. Drawings will be permitted to the extent and as
provided in each Bond Letter of Credit. No Drawing under any Bond Letter of
Credit shall be permitted for the payment of principal (whether due at maturity
or upon redemption or acceleration), interest or the purchase price of Pledged
Bonds unless such Pledged Bonds have been remarketed and the Stated Amount of
such Bond Letter of Credit has been consequently reinstated as provided in such
Bond Letter of Credit. The Bond Letters of Credit shall expire on December 31,
1998. The Bank agrees that all Drawings honored by the Bank shall be paid from
Bank funds.
Section 4. FEES. Fees in connection with the Bond Letters of Credit shall
be paid in accordance with the provisions of the Credit Agreement and, with
respect to matters referred to in Section 2.04(g) of the Credit Agreement, as
agreed from time to time by the Bank and the Company.
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Pursuant to Section 2.3.1 of the Prior Reimbursement Agreement, the Company
has prepaid the LOC Commission through March 31, 1996. The Bank will apply a
portion of such prepaid fee in an amount equal to the Letter of Credit Fee
described in Section 4.03(a) of the Credit Agreement applicable to the Bond
Letters of Credit for the period from the Effective Date to and including March
31, 1996, to the payment of such fee to the Administrative Agent for the benefit
of the Lenders, including the Bank. The Bank will retain all other prepaid
fees.
Section 5. CONDITION TO OPTIONAL REDEMPTION DRAWINGS. The Bank shall not
be required to make any payment to an LOC Beneficiary in connection with an
Optional Redemption Drawing unless the Company shall have notified the Bank of
the intended optional redemption at least 30 days in advance of the date on
which the Company wishes to cause the Optional Redemption Drawing to occur.
SECTION 6. REIMBURSEMENT FOR DEBT SERVICE DRAWINGS. Anything to the
contrary in Section 2.04(d)(i) of the Credit Agreement notwithstanding, each
Debt Service Drawing paid by the Bank shall constitute a Debt Service
Reimbursement Obligation which obligation shall be due and payable by the
Company in the amount of each such Debt Service Drawing on the date on which
such Debt Service Drawing is paid by the Bank to the LOC Beneficiary and shall
bear interest from the date such obligation becomes due until paid in full at
the per annum rate of interest equal to the Base Rate (applicable to Dollar
denominated Base Rate Loans) plus two percent (2.0%) until paid in full, which
interest shall be payable on demand.
SECTION 7. REIMBURSEMENT FOR LIQUIDITY DRAWINGS. Anything to the contrary
in Section 2.04(d)(i) of the Credit Agreement notwithstanding, each Liquidity
Drawing paid by the Bank (a) during the existence of a Default or an Event of
Default or (b) pursuant to a mandatory tender of any Hexcel Bonds (i) in
connection with conversion of the interest rate payable on any Hexcel Bonds to a
Fixed Rate, (ii) pursuant to Section 2.04(e) of the Indenture/Standard Terms of
any Indenture other than the Skagit Indenture, (iii) pursuant to Section 2.06(h)
of the Indenture/Standard Terms of any Indenture other than the Skagit
Indenture, or (iv) pursuant to Section 4.02 of the Skagit Indenture, shall
constitute a Debt Service Reimbursement Obligation which obligation shall be due
and payable in the amount of each such Liquidity Drawing on the date on which
such Liquidity Drawing is paid by the Bank to the LOC Beneficiary and shall bear
interest from the date such obligation becomes due until paid in full at the per
annum rate of interest equal to the Base Rate (applicable to Dollar denominated
Base Rate Loans) plus two percent (2.0%) until paid in full, which interest
shall be payable on demand. Each other
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Liquidity Drawing paid by the Bank under a Bond Letter of Credit shall
constitute a Liquidity Reimbursement Obligation.
Anything to the contrary in Section 2.04(d)(i) of the Credit Agreement
notwithstanding, the principal amount of each Liquidity Reimbursement Obligation
incurred pursuant to this Section shall be due and payable to the Bank in full
not later than the earliest of (a) the remarketing of the Pledged Bonds
purchased with the proceeds of an unreimbursed Liquidity Drawing (see Section
8), (b) six months following the date on which the Liquidity Drawing which
resulted in such Liquidity Reimbursement Obligation was paid by the Bank, (c)
the earliest date on which the Pledged Bonds purchased with the proceeds of an
unreimbursed Liquidity Drawing can be redeemed, other than by an optional
redemption, (d) the maturity date of the Pledged Bonds purchased with the
proceeds of an unreimbursed Liquidity Drawing, and (e) expiration or termination
of the Bond Letter of Credit relating to such Pledged Bonds. Each Liquidity
Reimbursement Obligation shall bear interest at the Base Rate for Dollar
denominated Base Rate Loans from the date of the Liquidity Drawing resulting in
such Liquidity Reimbursement Obligation until paid in full, which interest shall
be payable at the times and in the manner provided in Section 4.01(b) of the
Credit Agreement; PROVIDED, HOWEVER, that if a Liquidity Reimbursement
Obligation is not paid when due, such Liquidity Reimbursement Obligation
together with any accrued but unpaid interest thereon shall thereafter bear
interest at the per annum rate of interest equal to the Base Rate (applicable to
Dollar denominated Base Rate Loans) plus two percent (2.0%) until paid in full,
which interest shall be payable on demand.
The LOC Beneficiary for the purposes of making Liquidity Drawings shall use
the proceeds of Liquidity Drawings only for the purpose of purchasing Hexcel
Bonds tendered or deemed tendered for purchase pursuant to Section 2.06 of the
Indenture/Standard Terms of any Indenture other than the Skagit Indenture, or
Section 4.01 or 4.02 of the Skagit Indenture. Until remarketed in accordance
with the terms of the applicable Indenture, Pledged Bonds shall be registered in
the name of the Bank as holder of a pledge and security interest therein.
Pledged Bonds shall be entitled to all of the rights and privileges of Hexcel
Bonds outstanding under the applicable Indenture and shall be governed by all of
the terms and conditions of such Indenture; PROVIDED, HOWEVER, that Pledged
Bonds: (1) may not be tendered for purchase pursuant to Section 2.06 of the
Indenture/Standard Terms of any Indenture other than the Skagit Indenture or
Section 4.01 of the Skagit Indenture; (2) shall be redeemed, in the event of a
redemption pursuant to Section 2.18 of the Indenture/Standard Terms of any
Indenture other than the Skagit Indenture or
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<PAGE>
Section 3.01 of the Skagit Indenture or any other redemption thereunder,
prior to redemption of other Hexcel Bonds issued in connection with such
Indenture; and (3) shall not be entitled to payment of any premium upon
redemption.
SECTION 8. PAYMENT OF LIQUIDITY REIMBURSEMENT OBLIGATIONS FOLLOWING THE
REMARKETING OF PLEDGED BONDS. Prior to or simultaneously with the remarketing
of Pledged Bonds by the Placement Agent (as provided in Section 2.07 of the
Indenture/Standard Terms of any Indenture other than the Skagit Indenture or
Section 4.04 of the Skagit Indenture), the Company shall prepay the then
outstanding Liquidity Reimbursement Obligations incurred in connection with the
purchase of such Pledged Bonds by
(1) causing the Trustee or Agent, as applicable, to pay directly to the Bank the
entire purchase price for the remarketed Pledged Bonds, consisting of:
(a) the aggregate principal amount of the remarketed Pledged
Bonds, PLUS
(b) the aggregate amount of accrued and unpaid interest on such
Pledged Bonds received by the Trustee or Agent, as applicable, upon
placement of the Pledged Bonds in the form of due bills or otherwise,
calculated to the date of placement of such Pledged Bonds; and
(2) paying to the Bank the difference between interest accrued to the date of
such payment on the Liquidity Reimbursement Obligation (calculated at the Base
Rate for Dollar denominated Base Rate Loans) and the amount of interest received
by the Bank from the Trustee or Agent pursuant to clause (b) of this Section 8.
Payments received by the Bank from the Trustee or Agent when accompanied by a
certificate completed and signed by the Agent or Trustee, as applicable, in
substantially the form of Annex G to each Bond Letter of Credit shall be applied
by the Bank in reimbursement of Liquidity Reimbursement Obligations in the
manner described above. The Company irrevocably authorizes the Bank to rely on
such certificates and to reinstate the Bond Letter of Credit relating to such
Pledged Bonds in accordance therewith.
SECTION 9. PREPAYMENTS. The Company may, upon at least five Business
Day's written notice to the Bank, prepay the outstanding amount of any Liquidity
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Reimbursement Obligation in whole or in part (but not in sums of less than
$50,000 per prepayment) with accrued interest to the date of such prepayment on
the amount prepaid; PROVIDED, HOWEVER, that prepayments shall be credited first
to interest due and owing on any Debt Service Reimbursement Obligation, then to
principal due and owing on any Debt Service Reimbursement Obligation, then to
interest due and owing on any Liquidity Reimbursement Obligation, and finally to
principal due and owing on any Liquidity Reimbursement Obligation. The
provisions of this Section 9 shall not apply to prepayments made from the
proceeds of the placement of Pledged Bonds as provided in Section 8, or as a
result of the redemption or maturity of Pledged Bonds.
SECTION 10. CONDITIONS PRECEDENT. This Agreement shall become effective
when and only when each of the following conditions shall have been satisfied in
a manner acceptable to the Bank or shall have been waived in writing by the
Bank:
(a) the Bank shall have received from the Company this
Agreement, duly executed on behalf of the Company;
(b) the conditions precedent set forth in Section 5.01 of the
Credit Agreement shall have been satisfied or waived on behalf of the
Lenders and the Administrative Agent shall have so notified the Bank
in writing;
(c) the Bank shall have received an opinion addressed to the
Bank from Bond Counsel acceptable to the Bank to the effect that the
transactions contemplated by this Agreement and the Credit Agreement
will not adversely affect the exclusion of interest received in
connection with the Hexcel Bonds from gross income for federal income
tax purposes;
(d) the Bank shall have received from the Company the
reasonable legal fees and expenses of counsel to the Bank
incurred in connection with this Agreement and the Bond Letters
of Credit; and
(e) the Bank and the Company shall have entered into a written
agreement satisfactory to the Bank with respect to fees and
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<PAGE>
expenses which may be paid directly to the Bank for the sole account
of the Bank pursuant to Section 2.04(g) of the Credit Agreement.
SECTION 11. TERMINATION OF THE PRIOR REIMBURSEMENT AGREEMENT AND RELEASE
OF CERTAIN COLLATERAL. Upon this Agreement becoming effective as provided in
Section 10 of this Agreement, (a) the Prior Reimbursement Agreement shall
automatically terminate, (b) the Collateral Agreement dated as of February 1,
1995, between the Bank and the Company shall automatically terminate, and (c)
the Bank shall return to Citibank N.A., without making any draw or claim
thereon, (i) that certain irrevocable letter of credit no. NY-20511-30018324
issued by Citibank N.A. on December 28, 1995, to the Bank for the account of the
Company in the face amount of $600,000, and (ii) that certain irrevocable
letter of credit no. NY-20511-30017761 issued by Citibank N.A. on September 28,
1995, to the Bank for the account of the Company in the face amount of $300,000,
each pursuant to Section 2 of the aforementioned Collateral Agreement.
SECTION 12. PLEDGE AGREEMENTS. The Pledge Agreements shall remain in full
force and effect without interruption following the effectiveness of this
Agreement.
SECTION 13. EVENTS OF DEFAULT. The occurrence of any of the following
events shall be a "Reimbursement Agreement Event of Default" under this
Agreement:
(a) the Company shall fail to reimburse the Bank for any
Interest Drawing when due and such failure continues for a period of
five Business Days after the due date thereof; or
(b) the Company shall fail to pay when due any amount payable
under any provision of this Agreement (other than reimbursement for
Interest Drawings and for expenses the payment of which is being
contested in good faith by the Company) or any Loan Agreement and such
failure continues for a period of 30 days after the due date thereof;
or
(c) an Event of Default shall exist and be continuing under the
Credit Agreement; or
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(d) an Event of Default shall exist and be continuing under any
Related Document which event of default may, in the reasonable
judgment of the Bank, have a Material Adverse Effect, and such
situation continues for a period of 60 days; or
(e) any material provision of this Agreement or any Related
Document shall at any time for any reason cease to be valid and
binding on the Company, or shall be declared to be null and void, or
the validity or enforceability thereof shall be contested by the
Company or any Governmental Authority or the Company shall deny that
it has any or further liability or obligation under this Agreement or
such Related Document, and, in any such instance, such circumstance
shall have a Material Adverse Effect.
SECTION 14. REMEDIES UPON A REIMBURSEMENT AGREEMENT EVENT OF DEFAULT. If
any Event of Default shall have occurred and be continuing, the Bank shall, if
so directed in writing by the Administrative Agent or the Requisite Banks:
(a) by notice to the Company, declare any or all Liquidity
Reimbursement Obligations to be immediately due and payable, without
presentment, demand, protest or further notice of any kind, all of
which are hereby expressly waived by the Company;
(b) take such action with respect to the Pledged Bonds pursuant
to any Pledge Agreement as may be permitted under that agreement or at
law;
(c) notify any or all of the Trustees (with a copy to the
appropriate Agent or Agents) of such Event of Default and instruct
such Trustee or Trustees to declare the appropriate Hexcel Bonds to be
immediately due and payable in accordance with the terms of the
applicable Indenture; and
(d) exercise any rights and remedies available to the Bank at
law or in equity or under any other Related Document.
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<PAGE>
Nothing herein shall be deemed or construed to limit the rights and remedies
available pursuant to the Credit Agreement, which rights and remedies shall be
cumulative with the rights and remedies of the Bank hereunder.
SECTION 15. AMENDMENTS, ETC. No amendment or waiver of any provision of
this Agreement or any Related Document, nor consent to any departure by the
Company therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Bank and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. No amendment to this Agreement affecting the obligations of the Company
hereunder or the rights of the Bank with respect to the Pledged Bonds or any
additional collateral and no amendment to any Bond Letter of Credit (except for
substitution of a successor beneficiary of such Bond Letter of Credit or
extension of the term of such Bond Letter of Credit as provided in paragraph 2
of such Bond Letter of Credit) shall be entered into or approved by the parties
unless the parties shall have obtained an opinion of counsel experienced in
bankruptcy matters to the effect that such amendment will not subject the
Trustee or holders of Hexcel Bonds in connection with such Bond Letter of Credit
to claims that the proceeds of the Bond Letter of Credit may be recoverable from
the Trustee or the holders of Hexcel Bonds as voidable preferences of the
Company under Section 547(b) of the Bankruptcy Code.
SECTION 16. NOTICES, ETC. All notices, requests and other communications
to any party hereunder shall be in writing (including bank wire, telex,
facsimile transmission or similar writing) and shall be given to such party at
its address, telecopy or telex number set forth below or such other address or
telecopy number as such party may hereafter specify for the purpose of notice to
the other party. Each such notice, request or other communication shall be
effective (a) if given by mail, 72 hours after such communication is deposited
in the mails with first class air mail postage prepaid, addressed as aforesaid
or (b) if given by any other means, when delivered at the address specified in
this Section.
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Company: Hexcel Corporation
5794 West Las Positas Boulevard
Post Office Box 8181
Pleasanton, CA 94588
Attn: Treasurer
Telephone: (510) 734-9676
Telecopy: (510) 734-9285
Bank: Banque Nationale de Paris
San Francisco Branch
180 Montgomery Street, 3rd Floor
San Francisco, California 94104
Attn: Katherine Wolfe
Telephone: (415) 956-0707
Telecopy: (415) 296-8954
SECTION 17. NO WAIVER; REMEDIES. No failure on the part of the Bank to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
SECTION 18. RIGHT OF SET OFF.
(a) Upon the occurrence and during the continuance of any Event of
Default, the Bank is hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and apply any and all indebtedness
at any time owing by the Bank to or for the credit or the account of the Company
against any and all of the obligations of the Company now or hereafter existing
under this Agreement. Any amount received by the Bank by way of set off shall
be subject to sharing with the Lenders as provided in the Credit Agreement.
(b) Anything in clause (a) of this Section to the contrary notwithstanding
but without modifying any other provision of this Agreement, the Bank waives any
such right referred to in clause (a), and any other right which it may have at
law or otherwise to set off and apply such deposits or indebtedness referred to
in clause (a), if, when and after there shall be a Drawing under a Bond Letter
of Credit during the pendency of any proceeding by or against the Company
seeking to adjudicate it a
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bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of it or its
debts under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, or other similar official for it or for
any substantial part of its property; PROVIDED, HOWEVER, that such waiver
shall terminate and be of no force and effect either
(i) when and to the extent the exercise of such right would not
result in the Bank's being released, prevented or restrained from or
delayed in fulfilling the Bank's obligations under any Bond Letter of
Credit or
(ii) when and if the absence of such waiver would not result in
the lowering or suspension by the Rating Agency of its rating of the
Hexcel Bonds.
(c) The Bank agrees promptly to notify the Company after any such setoff
and application referred to in clause (a) of this Section; PROVIDED, HOWEVER,
that the failure to give such notice shall not affect the validity of such
setoff and application. Subject to the provisions of clause (b) of this
Section, the rights of the Bank under this Section are in addition to other
rights and remedies (including, without limitation, other rights of setoff or
banker's Lien) which the Bank may have.
SECTION 19. INDEMNIFICATION. In addition to such indemnifications as are
contained in the Credit Agreement, the Company hereby indemnifies and holds the
Bank harmless from and against any and all claims, damages, losses, liabilities,
costs or expenses which the Bank may incur or which may be claimed against the
Bank by any person or entity:
(a) by reason of any inaccuracy or alleged inaccuracy in any
material respect, or any untrue statement or alleged untrue statement
of any material fact, contained in any official statement, placement
memorandum, or any amendment or supplement thereto, or by reason of
the omission or alleged omission to provide notice or to state therein
a material fact necessary to make such statements, in the light of the
circumstances under which they were made, not misleading; PROVIDED,
HOWEVER, that, in the case of any action or proceeding alleging an
inaccuracy in a material respect, or an untrue statement, with respect
to information supplied by and describing the
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Bank in any official statement, placement memorandum or any supplement
or amendment thereto (the "Bank Information")
(i) indemnification by the Company pursuant to
clause (a) of this Section shall be limited to the costs and
expenses of the Bank (including fees and expenses of the
Bank's counsel) of defending itself against such allegation,
(ii) if in any such action or proceeding it is finally
determined that the Bank Information contained an untrue
statement in a material respect, then the Company shall not
be required to indemnify the Bank pursuant to clause (a) of
this Section for any claims, damages, losses, liabilities,
costs or expenses to the extent caused by such inaccuracy or
untrue statement, and
(iii) if any such action or proceeding shall be
settled by the Bank without there being a final
determination to the effect described in the preceding sub-
clause (ii), then the Company shall be required to indemnify
the Bank pursuant to clause (a) of this Section only if such
action or proceeding is settled with the Company's consent;
and
(b) by reason of or in connection with the execution, delivery
or performance of the Hexcel Bonds, any Remarketing Agreement, or any
transactions contemplated thereby; and
(c) by reason of or in connection with the execution and
delivery or transfer of, or payment or failure to make payment under,
any Bond Letter of Credit; PROVIDED, HOWEVER, that the Company shall
not be required to indemnify the Bank pursuant to clause (c) of this
Section for any claims, damages, losses, liabilities, costs or
expenses to the extent caused by
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(i) the Bank's willful misconduct or gross negligence
in determining whether documents presented under a Bond
Letter of Credit comply with the terms of such Bond Letter
of Credit; or
(ii) the Bank's willful failure to make lawful payment
under a Bond Letter of Credit after the presentation to it
by the LOC Beneficiary or a transferee beneficiary under
such Bond Letter of Credit of a draft and certificate
complying with the terms and conditions of such Bond Letter
of Credit; and
(d) by reason of or in connection with any claims, damages,
losses, liabilities, costs or expenses asserted against the Bank by or
on behalf of J.P. Morgan Securities, Inc., relating in any way to
Hexcel Bonds, including, without limitation, claims asserted in
connection with that certain letter agreement between J.P. Morgan
Securities, Inc., and the Bank dated December 30, 1993.
Nothing in this Section is intended to limit the Company's reimbursement
obligations contained herein. Without prejudice to the survival of any other
obligation of the Company hereunder, the indemnities and obligations of the
Company contained in this Section shall survive payment in full of reimbursement
amounts and fees payable pursuant to this Agreement and the termination of the
Bond Letters of Credit.
SECTION 20. COSTS AND EXPENSES. The Company agrees to pay on demand all
costs and expenses in connection with the administration of this Agreement, the
Pledge Agreements, and any other documents which may be delivered in connection
therewith, including, without limitation, the reasonable fees and out-of-pocket
expenses of counsel for the Bank with respect thereto and with respect to
advising the Bank as to its rights and responsibilities under this Agreement,
the Pledge Agreements and the Related Documents. The Company shall also pay on
demand all costs and expenses (including counsel fees and expenses) in
connection with: (a) amendments to this Agreement, any Related Document, any
Bond Letter of Credit, or consents to or waivers of any provision thereof
requested by the Company, (b) enforcement of this Agreement, the Pledge
Agreement, or such other documents as may be delivered in connection therewith,
or (c) any action or proceeding relating
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to a court order, injunction, or other process or decree restraining or
seeking to restrain the Bank from paying any amount under any Bond Letter of
Credit.
SECTION 21. BINDING EFFECT. This Agreement shall become effective when it
shall have been executed by the Company and the Bank and thereafter shall be
binding upon and inure to the benefit of the Company and the Bank and their
respective successors and assigns, except that the Company shall not have the
right to assign its rights hereunder or any interest herein without the prior
written consent of the Bank.
SECTION 22. SEVERABILITY. Any provision of this Agreement which is
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or non-authorization without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of such
provision in any other jurisdiction.
SECTION 23. GOVERNING LAW AND JURISDICTION. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of
California. Any legal action or proceeding with respect to this Agreement or
any Related Document may be brought in the courts of the State of California or
of the United States of America for the Northern District of California, and, by
execution and delivery of this Agreement, the Company and the Bank each accepts,
for itself and in respect of its property, generally and unconditionally, the
jurisdiction of the aforesaid courts. Nothing herein shall prevent either party
from commencing legal proceedings or from otherwise proceeding against the other
party or its property in any other jurisdiction.
SECTION 24. CURRENT RATING. The Bank makes no promise, representation or
warranty that its current long and short term debt ratings with any Rating
Agency shall continue until the Expiration Date.
SECTION 25. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first above written.
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Hexcel Corporation
/s/ WILLIAM P. MEEHAN
---------------------------
By: William P. Meehan
Title: Vice President
Banque Nationale de Paris, acting
through its San Francisco Branch
/s/ KATHERINE WOLFE
---------------------------
By: Katherine Wolfe
Title: Vice President
/s/ DEBRA HERMSMEYER
---------------------------
By: Debra Hermsmeyer
Title: Vice President
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EXHIBIT A
to
Second Restated and Amended Reimbursement Agreement
CERTAIN DEFINED TERMS
"AGENT", as used in connection with any Indenture or any Hexcel Bonds,
shall have the meaning given to that Indenture; PROVIDED, that in connection
with the Skagit Indenture the term "Agent" shall refer to the "Tender Agent" as
that term is used in the Skagit Indenture.
"AGREEMENT" means this Second Restated and Amended Reimbursement Agreement,
dated as of February 29, 1996, between the Company and the Bank, as amended from
time to time in accordance with its terms.
"BANK" means Banque Nationale de Paris, a banking corporation organized
under the laws of the Republic of France, acting through its San Francisco
Branch, its successors and assigns.
"BANK INFORMATION" has the meaning assigned to that term in Section 19 of
this Agreement.
"BANKRUPTCY CODE" means the Federal Bankruptcy Code, 11 U.S.C. Sections 101
ET SEQ., as amended from time to time, and any other successor federal
legislation hereafter enacted serving substantially similar purposes.
"BOND LETTERS OF CREDIT" means those letters of credit issued by the Bank
in support of Hexcel Bonds, each as amended from time to time in accordance with
its terms. The Bond Letters of Credit are described in Exhibit B attached to
this Agreement.
"BUSINESS DAY" means a day of the year which is not a Saturday or Sunday or
a day on which banking institutions located in New York or California are
required or authorized to remain closed or on which any applicable Placement
Agent or the New York Stock Exchange is closed.
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"CODE" means the United States Internal Revenue Code of 1986 (or any
successor statute containing the United States income tax law), as amended, and
the rulings and regulations (including temporary and proposed regulations)
promulgated thereunder.
"COMPANY" means the Hexcel Corporation, a Delaware corporation, its
successors and assigns.
"CREDIT AGREEMENT" means that certain Credit Agreement, dated as of
February 29, 1996, as amended from time to time, among the Company, Hexcel S.A.
(Belgium), Hexcel S.A. (Lyon), Brochier S.A., Hexcel U.K. Ltd. and Composite
Materials Limited United Kingdom, as "Borrowers", the institutions from time to
time party thereto as "Lenders" including the Bank, the institutions from time
to time party thereto as "Issuing Banks" including the Bank, Citibank, N.A., New
York Branch, as "U.S. Administrative Agent", Citibank, N.A., London Branch, as
"European Administrative Agent" and Credit Suisse as "Syndication Agent."
"CURRENT PLACEMENT AGENT AGREEMENTS" means the following documents:
(a) that certain Remarketing and Interest Services Agreement,
dated as of January 21, 1995, between the Company and Bear, Stearns &
Co. Inc. as Placement Agent, with respect to $750,000 California
Pollution Control Financing Authority Multi-Modal Interchangeable Rate
Pollution Control Revenue Refunding Bonds (Hexcel Corporation
Project), Series 1988;
(b) that certain Remarketing and Interest Services Agreement,
dated as of January 21, 1995, between the Company and Bear, Stearns &
Co. Inc. as Placement Agent, with respect to $2,050,000 Industrial
Development Authority of the City of Casa Grande Multi-Modal
Interchangeable Rate Industrial Development Revenue Refunding Bonds
(Hexcel Corporation Project), Series 1988;
(c) that certain Remarketing and Interest Services Agreement,
dated as of January 21, 1995, between the Company and Bear, Stearns &
Co. Inc. as Placement Agent, with respect to $3,150,000 Guadalupe-
Blanco River Authority Industrial Development Corpora-
17
<PAGE>
tion Multi-Modal Interchangeable Rate Industrial Development Revenue
Refunding Bonds, Series 1988 (Hexcel Corporation Project);
(d) that certain Remarketing and Interest Services Agreement,
dated as of January 21, 1995, between the Company and Bear, Stearns &
Co. Inc. as Placement Agent, with respect to $6,200,000 Industrial
Development Authority of the County of Los Angeles Multi-Modal
Interchangeable Rate Industrial Development Revenue Refunding Bonds
(Hexcel Corporation Project), Series 1988; and
(e) that certain Remarketing and Interest Services Agreement,
dated as of January 21, 1995, between the Company and Bear, Stearns &
Co. Inc. as, with respect to $1,000,000 City of Lancaster Multi-Modal
Interchangeable Rate Industrial Development Revenue Refunding Bonds
(Hexcel Corporation Project), Series 1988.
"DEBT SERVICE DRAWING" refers to Interest, Maturity, Mandatory Redemption,
Optional Redemption, and Acceleration Drawings, as each of those terms is
defined in the Bond Letters of Credit.
"DEBT SERVICE REIMBURSEMENT OBLIGATION" means the reimbursement obligation
of the Company to the Bank arising out of each Debt Service Drawing and, to the
extent provided in the first paragraph of Section 7 of this Agreement, each
Liquidity Drawing.
"DEFAULT" has the meaning assigned to that term in the Credit Agreement.
"DOLLARS" and "$" means the lawful currency of the United States of America
and, in relation to any payment under this Agreement, same day or immediately
available funds.
"DRAWING" means any Debt Service Drawing or any Liquidity Drawing.
"EVENT OF DEFAULT" has the meaning assigned to that term in the Credit
Agreement.
18
<PAGE>
"EXPIRATION DATE" means, for each Bond Letter of Credit, the date on which
such Bond Letter of Credit shall expire in accordance with its terms, subject to
extension as provided in paragraph 2 of such Bond Letter of Credit.
"GOVERNMENTAL AUTHORITY" means any nation or government, any federal, state
or local government or other political subdivision thereof and any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to such government or political subdivision.
"HEXCEL BONDS" means any Bond issued in connection with any or all of the
following series of bonds:
(a) California Pollution Control Financing Authority Multi-Modal
Interchangeable Rate Pollution Control Revenue Refunding Bonds (Hexcel
Corporation Project), Series 1988;
(b) Industrial Development Authority of the City of Casa Grande
Multi-Modal Interchangeable Rate Industrial Development Revenue
Refunding Bonds (Hexcel Corporation Project), Series 1988;
(c) Guadalupe-Blanco River Authority Industrial Development
Corporation Multi-Modal Interchangeable Rate Industrial Development
Revenue Refunding Bonds, Series 1988 (Hexcel Corporation Project);
(d) Industrial Development Authority of the County of Los
Angeles Multi-Modal Interchangeable Rate Industrial Development
Revenue Refunding Bonds (Hexcel Corporation Project), Series 1988;
(e) City of Lancaster Multi-Modal Interchangeable Rate
Industrial Development Revenue Refunding Bonds (Hexcel Corporation
Project), Series 1988; and
(f) Port of Skagit Industrial Development Corporation Variable
Rate Demand Revenue Bonds, 1989 (Hexcel Corporation Project).
19
<PAGE>
"INDENTURE" or "INDENTURES" refers to the following indentures of trust:
(a) that certain Indenture of Trust, dated as of April 1, 1988,
between the Company and the Bank of California, with respect to
$750,000 California Pollution Control Financing Authority Multi-Modal
Interchangeable Rate Pollution Control Revenue Refunding Bonds (Hexcel
Corporation Project), Series 1988, including the Standard Terms
incorporated therein, as amended from to time in accordance with the
terms thereof;
(b) that certain Indenture of Trust, dated as of March 1, 1988,
between the Company and the Bank of California, with respect to
$2,050,000 Industrial Development Authority of the City of Casa Grande
Multi-Modal Interchangeable Rate Industrial Development Revenue
Refunding Bonds (Hexcel Corporation Project), Series 1988, including
the Standard Terms incorporated therein, as amended from time to time
in accordance with the terms thereof;
(c) that certain Indenture of Trust, dated as of April 1, 1988,
between the Company and the Bank of California, with respect to
$3,150,000 Guadalupe-Blanco River Authority Industrial Development
Corporation Multi-Modal Interchangeable Rate Industrial Development
Revenue Refunding Bonds, Series 1988 (Hexcel Corporation Project),
including the Standard Terms incorporated therein, as amended from
time to time in accordance with the terms thereof;
(d) that certain Indenture of Trust, dated as of March 1, 1988,
between the Company and the Bank of California, with respect to
$6,200,000 Industrial Development Authority of the County of Los
Angeles Multi-Modal Interchangeable Rate Industrial Development
Revenue Refunding Bonds (Hexcel Corporation Project), Series 1988,
including the Standard Terms incorporated therein, as amended from
time to time in accordance with the terms thereof;
(e) that certain Indenture of Trust, dated as of April 1, 1988,
between the Company and the Bank of California, with respect to
$1,000,000 City of Lancaster Multi-Modal Interchangeable Rate
Industrial Development Revenue Refunding Bonds (Hexcel Corpora-
20
<PAGE>
tion Project), Series 1988, including the Standard Terms incorporated
therein, as amended from time to time in accordance with the terms
thereof; and
(f) the Skagit Indenture.
"INDENTURE/STANDARD TERMS" means the Standard Terms and Conditions of
Trust, with respect to each of the Indentures (except the Skagit Indenture),
dated the date of the applicable Indenture, incorporated by reference into such
Indenture, as amended from time to time in accordance with the terms of such
Indenture.
"INTEREST COMPONENT", with respect to each Bond Letter of Credit, has the
meaning given to such term in such Bond Letter of Credit.
"INTEREST DRAWING", with respect to each Bond Letter of Credit, has the
meaning given to such term in such Bond Letter of Credit.
"LIQUIDITY DRAWING" has the meaning assigned to that term in paragraph 3 of
the Bond Letters of Credit.
"LIQUIDITY REIMBURSEMENT OBLIGATION" means the reimbursement obligation of
the Company to the Bank resulting from each Liquidity Drawing, except to the
extent that a Liquidity Drawing shall result in a Debt Service Reimbursement
Obligation as provided in the first paragraph of Section 7 of this Agreement.
"LOAN AGREEMENT" means each Loan Agreement as defined in each of the
Indentures.
"LOC BENEFICIARY" means (i) with respect to each Bond Letter of Credit
other than the Bond Letter of Credit issued in connection with the Skagit
Indenture, either of the Trustee or the Agent, as joint beneficiaries of the
Bond Letter of Credit, and their respective transferees as provided in the Bond
Letter of Credit, and (ii) with respect to the Bond Letter of Credit issued in
connection with the Skagit Indenture, the Trustee.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the
operations or financial condition of the Company alone or the Company and the
21
<PAGE>
Subsidiaries on a combined basis, or (b) the ability of the Company to pay or
perform its obligations in accordance with the terms of this Agreement and the
other Related Documents.
"MOODY'S" means Moody's Investors Service, Inc., a Delaware corporation,
its successors and assigns and, if such corporation shall be dissolved or
liquidated or no longer perform the functions of a securities rating agency,
"Moody's" shall be deemed to refer to any other nationally recognized securities
rating agency designated by the Company with the approval of the Bank.
"OPTIONAL REDEMPTION DRAWING" has the meaning given to that term in
paragraph 3 of each of the Bond Letters of Credit.
"PERSON" means an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
"PLACEMENT AGENT" means (a) U.S. Bank of Washington, National Association,
with respect to the Hexcel Bonds issued pursuant to the Skagit Indenture, and
any successor Placement Agent appointed pursuant to the terms of the Skagit
Indenture and acceptable to the Bank, and (b) Bear, Stearns & Co. Inc. with
respect to the Hexcel Bonds issued pursuant to the Indentures other than the
Skagit Indenture, and any successor Placement Agent or Placement Agents
appointed pursuant to the terms of the applicable Indenture and acceptable to
the Bank.
"PLACEMENT AGREEMENTS" means the Current Placement Agreements and that
certain Remarketing Agreement dated as of December 1, 1989, by and among the
Company, the Port of Skagit County Industrial Development Corporation and
Security Pacific Securities, Inc.
"PLEDGE AGREEMENT" or "PLEDGE AGREEMENTS" means any or all of the following
documents:
(a) that certain Pledge and Security Agreement, dated as of
April 1, 1988, by and among the Company, the Bank, and Morgan Guaranty
Trust Company of New York relating to $750,000 California Pollution
Control Financing Authority M ulti-Modal Interchange-
22
<PAGE>
able Rate Pollution Control Revenue Refunding Bonds (Hexcel Corporation
Project), Series 1988;
(b) that certain Pledge and Security Agreement, dated as of
March 1, 1988, by and among the Company, the Bank, and Morgan Guaranty
Trust Company of New York relating to $2,050,000 Industrial
Development Authority of the City of Casa Grande Multi-Modal
Interchangeable Rate Industrial Development Revenue Refunding Bonds
(Hexcel Corporation Project), Series 1988;
(c) that certain Pledge and Security Agreement, dated as of
April 1, 1988, by and among the Company, the Bank, and Morgan Guaranty
Trust Company of New York relating to $3,150,000 Guadalupe-Blanco
River Authority Industrial Development Corporation Multi-Modal
Interchangeable Rate Industrial Development Revenue Refunding Bonds,
Series 1988 (Hexcel Corporation Project);
(d) that certain Pledge and Security Agreement, dated as of
March 1, 1988, by and among the Company, the Bank, and Morgan Guaranty
Trust Company of New York relating to $6,200,000 Industrial
Development Authority of the County of Los Angeles Multi-Modal
Interchangeable Rate Industrial Development Revenue Refunding Bonds
(Hexcel Corporation Project), Series 1988;
(e) that certain Pledge and Security Agreement, dated as of
April 1, 1988, by and among the Company, the Bank, and Morgan Guaranty
Trust Company of New York relating to $1,000,000 City of Lancaster
Multi-Modal Interchangeable Rate Industrial Development Revenue
Refunding Bonds (Hexcel Corporation Project); and
(f) that certain Pledge and Security Agreement, dated as of
December 1, 1989, by and among the Company, the Bank, and Bankers
Trust Company of New York, National Association, relating to
$3,000,000 Port of Skagit County Industrial Development Corporation
Variable Rate Demand Revenue Bond Series 1989 (Hexcel Corporation
Project).
23
<PAGE>
"PLEDGED BONDS" means the Hexcel Bonds purchased or deemed to be purchased
or otherwise acquired for the account of the Company with the proceeds of
Liquidity Drawings during any period in which the Bank has not been reimbursed
for such Liquidity Drawings.
"PRINCIPAL COMPONENT", with respect to each Bond Letter of Credit, has the
meaning given to such term in such Bond Letter of Credit.
"PRIOR REIMBURSEMENT AGREEMENT" means that certain Restated and Amended
Reimbursement Agreement, dated as of February 1, 1995, between the Bank and the
Company.
"RATING AGENCY" means Moody's and/or S&P.
"REIMBURSEMENT AGREEMENT EVENT OF DEFAULT" has the meaning assigned to that
term in Section 13 of this Agreement.
"REIMBURSEMENT OBLIGATION" means any and all Debt Service Reimbursement
Obligations and Liquidity Reimbursement Obligations.
"RELATED DOCUMENTS" means the Indentures, the Resolutions, the Hexcel
Bonds, the Loan Agreements, the Pledge Agreements, the Placement Agreements, and
such other agreements, documents or certificates as were or will be delivered to
the Bank in connection with the issuance of the Bond Letters of Credit and this
Agreement.
"RESOLUTIONS" refers to each resolution adopted by the issuer of each
series of Hexcel Bonds, authorizing the issuance of such series of Hexcel Bonds.
"S&P" means Standard and Poor's Corporation, a New York corporation, its
successors and assigns and, if such corporation shall be dissolved or liquidated
or no longer perform the functions of a securities rating agency, "S&P" shall be
deemed to refer to any other nationally recognized securities rating agency
designated by the Company with the approval of the Bank.
"SKAGIT INDENTURE" means that certain Indenture of Trust, dated as of
December 1, 1989, between the Company and Bankers Trust Company of
24
<PAGE>
California, with respect to $3,000,000 Port of Skagit Industrial Development
Corporation Variable Rate Demand Revenue Bonds, 1989 (Hexcel Corporation
Project), as amended from time to time in accordance with the terms thereof.
"STATED AMOUNT", with respect to each Bond Letter of Credit, has the
meaning given to such term in such Bond Letter of Credit.
"TRUSTEE" has the meaning assigned to that term in each of the Indentures.
25
<PAGE>
EXHIBIT B
to
Second Restated and Amended Reimbursement Agreement
LETTER OF CREDIT STATED AMOUNTS
Letter of Credit No. 86063, issued April 21, 1988, relating to $750,000
California Pollution Control Financing Authority Multi-Modal Interchangeable
Rate Pollution Control Revenue Refunding Bonds Series 1988 (Hexcel Corporation
Project), as amended.
Stated Amount: $802,500
Letter of Credit No. 86057, issued March 1, 1988, relating to $2,050,000
Industrial Development Authority of the City of Casa Grande Arizona Multi-Modal
Interchangeable Rate Industrial Development Revenue Refunding Bonds Series 1988
(Hexcel Corporation Project), as amended.
Stated Amount: $2,193,500
Letter of Credit No. 86066, issued April 21, 1988, relating to $3,150,000
Guadalupe-Blanco River Authority Industrial Development Corporation Multi-Modal
Interchangeable Rate Industrial Development Revenue Refunding Bonds, Series 1988
(Hexcel Corporation Project), as amended.
Stated Amount: $3,370,500
Letter of Credit No. 86056, issued March 1, 1988 relating to $6,200,000
Industrial Development Authority of the County of Los Angeles Multi--Modal
Interchangeable Rate Industrial Development Revenue Refunding Bonds Series 1988
(Hexcel Corporation Project), as amended.
Stated Amount: $5,029,000
26
<PAGE>
Letter of Credit No. 86065, issued April 21, 1988, relating to $1,000,000 City
of Lancaster Ohio Multi-Modal Interchangeable Rate Industrial Development
Revenue Refunding Bonds, Series 1988 (Hexcel Corporation Project), as amended.
Stated Amount: $1,070,000
Letter of Credit No. 086166, issued December 7, 1989, relating to $3,000,000
Port of Skagit County Industrial Development Corporation Variable Rate Demand
Revenue Bond Series 1989 (Hexcel Corporation Project), as amended.
Stated Amount: $2,598,630
27
<PAGE>
Exhibit 10.13
<PAGE>
FORM OF
OPTION AGREEMENT
(DIRECTORS)
OPTION AGREEMENT, dated as of the Grant Date, by and between the Optionee,
residing at Address of Optionee and Hexcel Corporation (the "Corporation").
W I T N E S S E T H :
WHEREAS, the Optionee is presently serving as a member of the Board of
Directors of the Corporation (the "Board"); and
WHEREAS, the Corporation has adopted the Corporation's Incentive Stock Plan
(the "Plan"), pursuant to which members of the Board are to be granted stock
options as an incentive for such members to advance the interests of the
Corporation.
NOW, THEREFORE, the parties agree as follows:
1. NOTICE OF GRANT; PLAN. Attached hereto and incorporated by reference
herein is a Notice of Grant. Unless otherwise provided herein, capitalized
terms used herein and set forth on such Notice of Grant shall have the meanings
ascribed to them on the Notice of Grant. Also attached hereto is the Plan; the
provisions of the Plan, including but not limited to Section VII(c) (Disability,
Death or Termination of Director Status; Change in Control) and Section XI
(Recapitalization), are incorporated by reference herein. This Option is
intended to constitute a "formula award" within the meaning of Rule 16b-3(c) of
the Securities Exchange Act of 1934, as amended, and all provisions of this
Option Agreement shall be construed in a manner to so comply.
2. GRANT OF OPTION. Pursuant to the Plan, and subject to the terms and
conditions set forth herein and therein, the Corporation hereby grants to the
Optionee the right and option (the "Option") to purchase all or any part of the
Option Shares of the Corporation's common stock, $.01 par value per share (the
"Common Stock"), which option is not intended to qualify as an incentive stock
option, as defined in Section 422 of the Internal Revenue Code of 1986, as
1
<PAGE>
amended (the "Code"). The grant of the Option shall be subject to the Plan's
approval by the stockholders of the Corporation. In the event such approval is
withheld, the Option shall become null and void.
3. PURCHASE PRICE. The purchase price per share of the Option Shares shall be
the Purchase Price.
4. TIME OF EXERCISE; TERM.
(a) The Option shall become exercisable on the Initial Vesting Date and
each Additional Vesting Date as to the number of shares set forth adjacent
thereto.
(b) Subject to the earlier expiration as expressly provided in the Plan,
the Option shall expire and cease to have any force or effect on the tenth
anniversary hereof.
5. METHOD OF EXERCISING OPTION. The Option shall be exercised by the delivery
by the Optionee to the Corporation at its principal office (or at such other
address as may be established by the Board) of written notice of the number of
Option Shares with respect to which the Option is exercised, accompanied by
payment in full of the aggregate Purchase Price for such Option Shares. Payment
for such Option Shares shall be made (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 Optionee; (iii) pursuant to a broker-
assisted "cashless exercise" program if established by the Corporation; or (iv)
by a combination of the methods described in (i) through (iii) above.
2
<PAGE>
6. MINIMUM HOLDING PERIOD. Option Shares may not be sold until six months
after the later of the Grant Date or date on which the Corporation's
shareholders approve the Plan.
7. TRANSFER AND INVESTMENT REPRESENTATION.
(a) The Option is not transferable otherwise than by will or the laws of
descent and distribution, and the Option may be exercised during the
Optionee's lifetime only by the Optionee. Any attempt to transfer the
Option in contravention of this subparagraph (a) is void AB INITIO. The
Option shall not be subject to execution, attachment or other process.
(b) The Optionee represents that, unless at the time of exercise of the
Option the issuance of the Option Shares to the Optionee is registered
under the Securities Act of 1933, any and all Option Shares purchased
hereunder shall be acquired for investment only and without a view to the
resale or distribution thereof. If the issuance of the Option Shares is
not so registered, certificates for the Option Shares shall bear a legend
reciting the fact that such Option Shares may only be transferred pursuant
to an effective registration statement under the Securities Act of 1933 or
an opinion of counsel to the Corporation (or an opinion of counsel to the
Optionee reasonably satisfactory to the Corporation) that such registration
is not required. The Corporation may also issue "stop transfer"
instructions with respect to such Option Shares while they are subject to
such restrictions.
(c) The Corporation shall use its best efforts to have the Option Shares
listed on each securities exchange on which the Common Stock is then listed
as promptly as possible. The Corporation shall not be obligated to issue
or sell any Option Shares until they have been listed on each securities
exchange on which the Common Stock is then listed. The Corporation shall
use its best efforts to effect such listing as promptly as practicable.
(d) The Corporation agrees promptly to file with the Securities and
Exchange Commission a registration statement on Form S-8 covering the
issuance of the Option Shares pursuant to this Option Agreement, and the
Common Stock to be issued upon exercise of this Option, to cause such
registration statement to become effective, and to keep such registration
3
<PAGE>
statement effective for the period that this Option shall be outstanding
and exercisable. In the event the Corporation fails to maintain the
effectiveness of the Form S-8 registration statement and/or does not list
the Option Shares on an appropriate stock exchange, and as a consequence,
the Optionee is unable to sell his Option Shares, the Corporation hereby
agrees, subject to compliance with any contractual restrictions applicable
to the Corporation, to advance to the Optionee any funds that may be due by
the Optionee to pay taxes (federal, state and/or local) that may be
incurred in connection with the exercise of the Option. The Optionee
agrees to reimburse the Corporation for any funds advanced by the
Corporation to the Optionee pursuant to the preceding sentence (together
with the Corporation's out-of-pocket interest costs thereon) out of
proceeds derived by the Optionee from the sale of said Option Shares.
8. NO RIGHTS IN OPTION SHARES. The Optionee shall have none of the rights of
a shareholder with respect to the Option Shares unless and until issued upon
exercise of the Option.
9. NO RIGHT TO CONTINUE AS A DIRECTOR. Nothing contained herein shall be
deemed to confer upon the Optionee any right to remain a director of the
Corporation or a parent or subsidiary of the Corporation.
10. GOVERNING LAW/JURISDICTION. This Option Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without reference
to principles of conflict of laws.
11. RESOLUTION OF DISPUTES. Any disputes arising under or in connection with
this Option Agreement shall be resolved by binding arbitration before a single
arbitrator, to be held in New York in accordance with the commercial rules and
procedures of the American Arbitration Association. Judgment upon the award
rendered by the arbitrator shall be final and subject to appeal only to the
extent permitted by law. Each party shall bear its or his own expenses incurred
in connection with any arbitration; PROVIDED, HOWEVER, the cost of the
arbitration, including without limitation, reasonable attorneys' fees of the
Optionee, shall be borne by the Corporation in the event the Optionee is the
prevailing party in the arbitration. Anything to the contrary notwithstanding,
each party hereto has the right to proceed with a court action for injunctive
relief or relief from violations of law not within the jurisdiction of an
arbitrator.
4
<PAGE>
12. MISCELLANEOUS. This Option Agreement cannot be changed or terminated
orally. This Option Agreement and the Plan contain the entire agreement between
the parties relating to this subject matter hereof. The section headings herein
are intended for reference only and shall not affect the interpretation hereof.
5
<PAGE>
ANNEX A
NOTICE OF GRANT
EMPLOYEE STOCK OPTION
HEXCEL CORPORATION INCENTIVE STOCK PLAN
The following employee of Hexcel Corporation, a Delaware corporation
("Hexcel") has been granted an employee stock option to purchase shares of the
Common Stock of Hexcel, $.01 par value, in accordance with the terms of this
Notice of Grant and the Employee Option Agreement attached.
The following is a summary of the principal terms of the employee stock
option which has been granted. The terms below shall have the meanings ascribed
to them below when used in the Employee Option Agreement attached.
- ------------------------------------
Optionee:
- ------------------------------------
Address of Optionee:
- ------------------------------------
Employee Number:
- ------------------------------------'
Employee ID Number
- ------------------------------------
Foreign Sub Plan, if applicable
March 1, 1996
- ------------------------------------
Grant Date
- ------------------------------------
Purchase Price
- ------------------------------------
Aggregate Number of Shares
Granted (the "Option Shares")
6
<PAGE>
IN WITNESS WHEREOF, the parties hereby agree to the terms of this
Notice of Grant and the Employee Option Agreement attached hereto and execute
this Notice of Grant as of the Grant Date.
HEXCEL CORPORATION
___________________ By:___________________________________
Optionee
Name:_________________________________
Title:________________________________
7
<PAGE>
Exhibit 10.14
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT made this 29th day of February, 1996, between Hexcel
Corporation, a Delaware corporation (the "Company"), and John J. Lee (the
"Executive").
The Executive is presently employed by the Company as its Chief Executive
Officer.
The Company has entered into the transactions contemplated under that
certain Strategic Alliance Agreement, dated as of September 29, 1995, as
amended, by and among Ciba-Geigy Limited ("Ciba"), Ciba-Geigy Corporation and
the Company (the "Strategic Alliance Agreement").
The Board of Directors of the Company (the "Board") recognizes that the
Executive's contribution to the growth and success of the Company has been
substantial. The Board desires to provide for the continued employment of
the Executive and to make certain changes in the Executive's employment
arrangements with the Company which the Board has determined will reinforce
and encourage the continued attention and dedication to the Company of the
Executive as a member of the Company's management, in the best interest of
the Company and its stockholders. The Executive is willing to commit himself
to continue to serve the Company, on the terms and conditions herein provided.
In order to effect the foregoing, the Company and the Executive wish to
enter into an employment agreement on the terms and conditions set forth
below. Accordingly, in consideration of the premises and the respective
covenants and agreements of the parties herein contained, and intending to be
legally bound hereby, the parties hereto agree as follows:
I. EMPLOYMENT. The Company hereby agrees to continue to employ the
Executive, and the Executive hereby agrees to continue to serve the Company,
on the terms and conditions set forth herein.
II. TERM. The employment of the Executive by the Company as provided
in Section 1 shall commence on the Closing Date (as such term is defined in
the Strategic Alliance Agreement) (the "Commencement Date") and end on the
fifth anniversary of the Commencement Date, unless further extended or sooner
terminated as hereinafter provided.
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<PAGE>
III. POSITION AND DUTIES. The Executive shall serve as Chairman of
the Board and Chief Executive Officer of the Company and shall have such
responsibilities, duties and authority consistent with such position and as
may from time to time be assigned to the Executive by the Board. The
Executive shall devote substantially all of his working time and efforts to
the business and affairs of the Company; PROVIDED, HOWEVER, that the
Executive will be permitted (i) to serve as a director or advisor to other
for-profit and not-for-profit organizations and corporations and (ii) to
serve as an active partner of certain partnerships for which he is already a
partner as of the date hereof, in each case so long as (x) such service does
not materially interfere with the performance of his obligations hereunder
and (y) such organizations, corporations and partnerships are not competitive
in any business area in which the Company is engaged during the term of this
Agreement. The Executive shall furnish to the Company a list of each such
entity on the Commencement Date and shall update such list as appropriate.
IV. PLACE OF PERFORMANCE. In connection with the Executive's
employment by the Company, the Executive shall perform his duties and conduct
his business at the principal executive offices of the Company, which shall
at all times be located in the New York City/Connecticut metropolitan area,
except for required travel on the Company's business to an extent
substantially consistent with present business travel obligations.
V. COMPENSATION AND RELATED MATTERS.
A. SALARY. During the period of the Executive's employment
hereunder, the Company shall pay to the Executive an annual base salary at a
rate of (x) for the 1996 calendar year, $400,000 and (y) for calendar years
during the Term after 1996, at such increased rate as may from time to time
be determined by the Board, PROVIDED, HOWEVER, that once the Executive's
annual base salary is increased, it may not thereafter be decreased during
the term of this Agreement. The Executive's annual base salary shall be paid
in substantially equal installments, no less frequently than monthly, in
accordance with the Company's standard payroll practices. Compensation of
the Executive by salary payments shall not be deemed exclusive and shall not
prevent the Executive from participating in any other compensation or benefit
plan of the Company. The salary payments (including any increased salary
payments) hereunder shall not in any way limit or reduce any other obligation
of the Company hereunder, and no other compensation, benefit or payment
hereunder shall in any way limit or reduce the obligation of the Company to
pay the Executive's salary hereunder.
2
<PAGE>
B. ANNUAL BONUSES. In recognition of the Executive's services on
behalf of the Company in the 1995 calendar year, the Company shall pay the
Executive a bonus award equal to $500,000. During the term of the
Executive's employment hereunder, the Executive shall participate in such
annual incentive compensation plans as the Company shall make available to
its other officers on terms no less favorable than those applicable to such
other officers.
C. EQUITY COMPENSATION.
1. INCENTIVE STOCK PLAN. a. Effective as of the Commencement Date, the
Executive shall be granted nonqualified options to purchase 200,000 shares of
common stock of the Company, par value $.01 per share ("Common Stock"), under
the Company's Incentive Stock Plan, at a per share exercise price equal to
the closing price per share (the "Price Per Share") of Common Stock on the
New York Stock Exchange (or if not then listed on such exchange, such other
national securities exchange or quotation system as then listed upon) on the
Commencement Date. Such options will have a ten-year term and will become
vested and exercisable at the rate of (x) 33-1/3% of such options on each of
the first three anniversaries of the Commencement Date, or (y) if more rapid
than under clause (x), (A) an aggregate of 33-1/3% of such options on the
fifth consecutive trading day on which the Price Per Share on the New York
Stock Exchange remains at or above $12, (B) an aggregate of 66-2/3% of such
options on the fifth consecutive trading day on which the Price Per Share
remains at or above $16 and (C) an aggregate of 100% of such Options on the
fifth consecutive trading day on which the Price Per Share remains at or
above $20.
b. Effective as of the Commencement Date, the Executive shall be granted
nonqualified options to purchase 100,000 shares of Common Stock under the
Company's Incentive Stock Plan at a per share exercise price equal to the
Price Per Share on the date such options are exercised (the "Short-Term
Options"). Such Short-Term Options will (1) have a 90-day term, (2) be
immediately exercisable and (3) provide for automatic additional grants of
two options for every Short-Term Option exercised by the Executive during
such 90-day period ("Reload Options"). Reload Options will (1) have a per
share exercise price equal to the per share exercise price of the Short-Term
Options to which they relate, (2) have a term of ten years from the date of
grant and (3) be subject to the same vesting and exercisability schedule as
options provided in Section
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5(c)(i)(A) hereof. Notwithstanding the foregoing, the two Reload
Options corresponding to each exercised Short-Term Option will be
immediately terminated in the event that the Executive sells, transfers,
pledges or otherwise alienates the share of Common Stock received by
him by virtue of the exercise of such Short-Term Option at any time prior
to the earlier of (i) the Executive's termination of employment for any
reason or (ii) the fourth anniversary of the exercise thereof.
2. PERFORMANCE ACCELERATED RESTRICTED STOCK UNITS. The Company shall
implement a performance accelerated restricted stock unit program under its
Stock Incentive Plan (the "Stock Program") on or prior to the Commencement
Date. Effective as of the Commencement Date, the Executive shall be granted
under the Stock Program, 200,000 performance accelerated restricted stock
units ("PARs"). The 200,000 PARs shall vest on (x) the fifth anniversary of
the Commencement Date, or (y) on such earlier date to the extent certain pre-
determined performance criteria (the "PARs Goals") are achieved. The PARs
Goals shall be as follows: if earnings of the Company before interest and
taxes (as provided in the Company's audited financial statements) ("EBIT")
equals or exceeds $70 million for any fiscal year of the Company, an
aggregate of 33-1/3% of such PARs shall become vested; an aggregate of 66-
2/3% of such PARs shall become vested if EBIT for any fiscal year of the
Company equals or exceeds $80 million; and an aggregate of 100% of such PARs
shall become vested if EBIT for any fiscal year of the Company equals or
exceeds $90 million. Upon vesting, PARs shall be converted into an
equivalent number of shares of Common Stock that will be immediately
distributed to the Executive; PROVIDED, HOWEVER, that no such PARs shall be
converted and distributed to the Executive until the first business day of
the first year in which the Company is not precluded from deducting the
associated compensation expense under Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code"). The Executive shall have no voting
rights with respect to PARs unless and until such PARs are converted to
shares; PROVIDED, HOWEVER, that on each dividend payment date with respect to
the Common Stock subsequent to any PARs becoming fully vested (but not yet
converted or distributed by virtue of the immediately preceding proviso) the
Company shall credit the Executive with an additional number of fully vested
whole and partial PARs (assuming each such PAR was a share of Common Stock)
equal in value to the amount of dividends which the Executive would have
received on such dividend payment date if all such vested PARs (including
PARs previously credited to the Execu-
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tive pursuant to this section) which had not yet been converted into
shares had been so converted prior to the record dated of such
dividend. Such dividends will be credited as PARs as of the payment
date of such dividends and such PARs shall thereafter be treated in
the same manner as other PARs under this Agreement.
3. FORFEITURE. If the Executive's employment with the Company is
involuntarily terminated for Cause (as defined below) or the Executive
voluntarily terminates his employment with the Company other than for Good
Reason (as defined below), the Executive shall forfeit all options (including
Short-Term Options and Reload Options) and PARs provided in this Section 5(c)
which have not yet become vested and/or exercisable as of the Date of
Termination. Any such options which have become vested and exercisable will
remain exercisable for a period of 90 days following the Date of Termination
(as defined below) and any PARs which have vested shall be converted into
shares of Common Stock and immediately distributed to the Executive,
PROVIDED, HOWEVER, that no such shares shall be distributed to the Executive
until the first business day of the first year in which the Company is not
precluded from deducting the associated compensation expense under Section
162(m) of the Code.
Notwithstanding any other provision contained herein, if the Executive's
employment with the Company is involuntarily terminated other than for Cause,
the Executive terminates employment for Good Reason, or the Executive dies or
terminates employment due to disability, (x) all options (including Short-
Term Options and Reload Options) shall become immediately vested and
exercisable and shall remain exercisable for the lesser of (A) one year
following the Date of Termination, or, if applicable, for one year following
the Executive's death or disability or (B) for the remainder of the option
term, and (y) all PARs shall vest, be converted into shares of Common Stock
and be immediately distributed to the Executive, PROVIDED, HOWEVER, that no
such shares shall be distributed to the Executive until the first business
day of the first year in which the Company is not precluded from deducting
the associated compensation expense under Section 162(m) of the Code.
4. PLAN TERMS GOVERN. Subject to the foregoing, all options and PARs
granted to the Executive shall contain such terms and conditions as shall be
set forth in the Company's Incentive Stock Plan.
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5. BANKRUPTCY COURT GRANT. Effective as of the Commencement Date, the
Executive shall be granted stock options (the "Bankruptcy Options") to
acquire 113,379 shares of Common Stock as provided in the Plan of
Reorganization, dated as of November 7, 1994, as approved by the United
States Bankruptcy Court. The exercise price per share of the Bankruptcy
Options shall be $5.05. The Bankruptcy Options shall expire on the third
anniversary of the Commencement Date notwithstanding any earlier termination
of the Executive's employment with the Company for any reason. The
Bankruptcy Options shall vest in equal monthly installments over the two-year
period beginning on the Commencement Date, PROVIDED, HOWEVER, that such
options shall become immediately vested and exercisable upon a termination of
the Executive's employment with the Company for any reason during the three-
year period beginning on the Commencement Date. Except as provided in this
section, the Bankruptcy Options shall be subject to the terms and conditions
provided in the Stock Incentive Plan.
6. INCENTIVE COMPENSATION. During the term of the Executive's employment
hereunder, the Executive shall participate in such long-term incentive and
equity compensation plans as the Company shall make available to its other
officers on terms no less favorable than those applicable to such other
officers.
D. DEFERRED COMPENSATION ACCOUNT. 1. Effective as of the Commencement
Date, the Company shall establish a nonqualified deferred compensation
arrangement for the benefit of the Executive. The Company will establish a
bookkeeping account (the "Account") to which it shall credit in respect of
each of seven fiscal years of the Company, commencing with the Company's 1995
fiscal year, an amount equal to $366,147 per annum, increased by 6% for each
fiscal year after the 1995 fiscal year. The Company will credit the first
installment contribution on the Commencement Date in respect of the 1995
fiscal year, and will credit each subsequent contribution on each of the next
six consecutive December 31 thereafter in respect of fiscal years 1996
through 2001. The Account shall be credited with interest at the end of each
fiscal year at a rate of 9%. No later than January 31 of each year during
the term of this Agreement beginning with January 31, 1997, the Company shall
deliver to the Executive a statement showing the balance of the Account as of
December 31 of the prior year and all amounts credited to the Account during
such year.
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2. At any time following the later of (x) the Executive's attainment of
age 65 or (y) the last required crediting of the $366,147 installment (as
increased by 6% per annum) to the Account (including any early crediting as
described in (iv) below) (but in no event earlier than the Executive's
termination of employment with the Company), the Executive shall receive, or
commence to receive, the amount credited to the Account. The Executive may
elect to receive the value of the Account (1) in a lump sum, (2) in the form
of a single life annuity with a ten-year certain payment, or (3) by causing
the Company to purchase a single premium annuity contract from an insurance
company of the Executive's choice, provided that any such election is made no
later than the time determined by the Company's counsel to avoid the
application of the doctrine of constructive receipt. If the Executive fails
to make a timely election, payment will be in the form of a lump sum.
Annuity payments (if applicable) shall be the actuarial equivalent of the
lump sum amount, using the mortality table for males provided in Revenue
Ruling 95-28 and assuming an interest rate equal to the product of (x) the
prime rate in effect at Credit Suisse as of the first day of the month
immediately preceding the first month for which an annuity payment is to be
made to the Executive hereunder and (y) 1 minus the highest rate of
individual federal, state and local income tax in effect for the year in
which the annuity payments commence and in the jurisdiction of the
Executive's residence for such year (giving effect to any available deduction
for state and local income taxes in calculating federal income tax).
3. If the Executive's employment with the Company is involuntarily
terminated other than for Cause or he terminates employment for Good Reason,
(A) all remaining contribution installments referred to in clause (i) above
that have not been made to the Account in respect of future fiscal years will
be credited to the Account as of the Date of Termination, and (B) the Company
shall commence distribution of the Account as soon as practicable following
the Date of Termination in accordance with the election made by the Executive
under clause (ii) above.
If the Executive's employment with the Company is involuntarily
terminated for Cause or if he terminates employment voluntarily other than
for Good Reason, in either case during the term of this Agreement, no further
contributions shall be made to the Account and the Company shall commence
distribution of the Account as soon as practicable following the Date of
Termination in accordance with the election made by the Executive under
clause (ii) above. If the Executive's employment with the Company is
involuntarily terminated for Cause, or if the Executive terminates employment
with the Company voluntarily
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other than for Good Reason, in either case after the expiration of the
five-year term of this Agreement, the Company shall continue to credit to the
Account all amounts as they become due in accordance with clause (i) above
and the Company shall commence distribution of the Account as soon as
practicable following the last date on which amounts are so credited in
accordance with the election made by the Executive under clause (ii) above.
If the Executive dies or terminates employment due to disability, all
remaining contribution installments referred to in clause (i) above that have
not been made to the Account in respect of future years will be credited to
the Account as of the Date of Termination and the Company shall commence
distribution of the Account as soon as practicable following the Date of
Termination as a lump-sum distribution.
4. In no event shall payment of the Account be paid, or commence to be
paid, until the first business day of the first year in which the Company is
not precluded from deducting the associated compensation expense under
Section 162(m) of the Code.
E. OTHER BENEFITS. The Company shall maintain in full force and
effect, and the Executive shall be entitled to continue to participate in
with a level of benefits no less favorable than any other senior executive
officer of the Company, all of the employee benefit plans and arrangements in
effect on the date hereof in which the Executive participates or plans or
arrangements providing the Executive with at least equivalent benefits
thereunder (including, without limitation, each retirement plan, supplemental
and excess retirement plans, annual and long-term incentive compensation
plans, stock option and purchase plans, group life insurance and accident
plan, medical and dental insurance plans, and disability plan). The
Executive shall be entitled to participate in or receive benefits under any
employee benefit plan or arrangement made available by the Company in the
future to its executives and key management employees, subject to and on a
basis consistent with the terms, conditions and overall administration of
such plans and arrangements.
F. VACATIONS. The Executive shall be entitled to a number of vacation
days in each calendar year, and to compensation in respect of earned but
unused vacation days, equal to the maximum number of vacation days for which
any executive officer of the Company may become eligible determined under the
Company's vacation policy as in effect from time to time, but in no event less
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than five (5) weeks per year. The Executive shall also be entitled to all
paid holidays and personal days given by the Company to its senior executive
officers.
G. SERVICES FURNISHED. The Company shall furnish the Executive with
office space, stenographic assistance and such other facilities and services
as shall be suitable to the Executive's position and adequate for the
performance of his duties as set forth in Section 3 hereof.
H. EXPENSES. During the term of the Executive's employment hereunder,
the Executive shall be entitled to receive prompt reimbursement for all
reasonable and customary expenses incurred by the Executive in performing
services hereunder, including all reasonable and customary expenses of travel
and living expenses while away from home on business or at the request of and
in the service of the Company, provided that such expenses are incurred and
accounted for in accordance with the policies and procedures established by
the Company.
VI. DIRECTORSHIPS/OTHER OFFICES. Subject to Sections 3 and 4, the
Executive agrees to serve without additional compensation, if elected or
appointed thereto, as a director of any of the Company's subsidiaries and in
one or more executive offices of any of the Company's subsidiaries, provided
that the Executive is indemnified for serving in any and all such capacities
on a basis no less favorable than is from time to time provided by the
Company or any of its subsidiaries to its other directors and senior
executive officers.
VII. TERMINATION. The Executive's employment hereunder may be
terminated without any breach of this Agreement only under the following
circumstances:
A. DEATH. The Executive's employment hereunder shall terminate upon
his death.
B. DISABILITY. If, as a result of the Executive's incapacity due to
physical or mental illness, the Executive shall have been absent from his
duties hereunder on a full-time basis for the entire period of six
consecutive months, and within thirty (30) days after written notice of
termination is given (which may occur before or after the end of such six
month period) shall not have returned to the performance of his duties
hereunder on a full-time basis, the Company may terminate the Executive's
employment hereunder.
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C. CAUSE. The Company may terminate the Executive's employment
hereunder for Cause. For purposes of this Agreement, the Company shall have
"Cause" to terminate the Executive's employment hereunder upon (i) the
willful and continued failure by the Executive to substantially perform his
duties hereunder (other than any such failure resulting from the Executive's
incapability due to physical or mental illness or any such actual or
anticipated failure after the issuance of a Notice of Termination, as defined
in Section 7(e), by the Executive for Good Reason, as defined in Section
7(d)(ii)), after demand for substantial performance is delivered by the
Company that specifically identifies the manner in which the Company believes
the Executive has not substantially performed his duties), or (ii) the
willful engaging by the Executive in misconduct which is demonstrably and
materially injurious to the Company, monetarily or otherwise including, but
not limited to, conduct that constitutes Competitive Activity, as defined in
Section 10). For purposes of this Section 7(c) no act, or failure to act, on
the Executive's part shall be considered "willful" unless done, or omitted to
be done, by him not in good faith and without reasonable belief that his
action or omission was in the best interest of the Company. Notwithstanding
the foregoing, the Executive shall not be deemed to have been terminated for
Cause without (1) reasonable notice from the Board to the Executive setting
forth the reasons for the Company's intention to terminate for Cause, (2)
delivery to the Executive of a resolution duly adopted by the affirmative
vote of two-thirds or more of the Board then in office (excluding the
Executive) at a meeting of the Board called and held for such purpose,
finding that in the good faith opinion of the Board, the Executive was guilty
of the conduct set forth in this Section 7(c) and specifying the particulars
thereof in detail, (3) an opportunity for the Executive, together with his
counsel, to be heard before the Board, and (4) delivery to the Executive of a
Notice of Termination, as defined in subsection (e) hereof, from the Board
specifying the particulars thereof in detail.
D. TERMINATION BY THE EXECUTIVE. 1. The Executive may terminate his
employment hereunder (A) for Good Reason or (B) if his health should become
impaired to an extent that makes his continued performance of his duties
hereunder hazardous to his physical or mental health or his life, provided
that the Executive shall have furnished the Company with a written statement
from a qualified doctor to such effect, and provided, further, that, at the
Company's request, the Executive shall submit to an examination by a doctor
selected by the Company and such doctor shall have concurred in the
conclusion of the Executive's doctor. In the event that the doctor selected
by the Company does not so concur, the two doctors shall select, by mutual
agreement, a third doctor, independent of the parties hereto, whose
determination regarding the
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Executive's physical or mental health shall be conclusive for purposes of
this paragraph.
2. For purposes of this Agreement, "Good Reason" shall mean (A) a
failure by the Company to comply with any material provision of this
Agreement which failure has not been cured within thirty (30) days after
written notice of such noncompliance has been given by the Executive to the
Company, (B) any purported termination of the Executive's employment which is
not effected pursuant to a Notice of Termination satisfying the requirements
of paragraph (e) hereof (and for purposes of this Agreement no such purported
termination shall be effective) or (C) a "Change in Control" shall have
occurred. For purposes of this Agreement, Change in Control means:
(A)(i) any person (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (other
than Ciba and its affiliates and any former Ciba affiliates holding Company
voting securities pursuant to Section 4.01(b) of the Governance Agreement (as
defined in the Strategic Alliance Agreement)) (a "Person") is or becomes the
beneficial owner (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (x) the then outstanding Common Stock
of the Company (the "Outstanding Common Stock") or (y) the combined voting
power of the then outstanding securities entitled to vote generally in the
election of directors of the Company (the "Total Voting Power"); excluding,
however, the following: (1) any acquisition by the Company or any of its
affiliates or (2) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or Ciba or any of their
respective affiliates or any former Ciba affiliates holding Company voting
securities pursuant to Section 4.01(b) of the Governance Agreement and (ii)
Ciba and its affiliates and any former Ciba affiliates holding Company voting
securities pursuant to Section 4.01(b) of the Governance Agreement (1)
beneficially own, in the aggregate, a lesser percentage of the Total Voting
Power than such Person beneficially owns and (2) do not have the right or
ability by voting power, contract or otherwise to elect or designate for
election at least the same percentage of the members of the Board
contemplated in the Governance Agreement for their then level of ownership;
or
(B) a change in the composition of the Board such that the individuals
who, as of the effective date of this Agreement, constitute the Board
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(such individuals shall be hereinafter referred to as the "Incumbent
Directors") 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 Company's stockholders,
was made or approved pursuant to the Governance Agreement between the
Company and Ciba or by a vote of at least a majority of the Incumbent
Directors (or directors whose election or nomination for election was
previously so approved) shall be considered 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 Company of a reorganization,
merger or consolidation or sale or other disposition of all or substantially
all of the assets of the Company ("Corporate Transaction"); excluding,
however, such a Corporate Transaction (1) pursuant to which all or
substantially all of the individuals and entities who are the beneficial
owners, respectively, of the Outstanding Common Stock and Total Voting Power
immediately prior to such Corporate Transaction will beneficially own,
directly or indirectly, more than 50%, respectively, of the outstanding
common stock and the combined voting power of the then outstanding securities
entitled to vote generally in the election of directors of the company
resulting from such Corporate Transaction (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company'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 Common
Stock and Total Voting Power, as the case may be, or (2) after which (a) no
Person beneficially owns a greater percentage of the combined voting power of
the then outstanding securities entitled to vote generally in the election of
directors of such corporation than do Ciba and its affiliates and any former
Ciba affiliates holding Company voting securities pursuant to Section 4.01(b)
of the Governance Agreement in the aggregate and (b) Ciba and its affiliates
and any former Ciba affiliates holding Company voting securities pursuant to
Section 4.01(b) of the Governance Agreement have the right and ability by
voting power, con-
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tract or otherwise to elect or designate for election no less than
the same percentage of the members of the board of directors of such
corporation contemplated in the Governance Agreement with respect to
the Company for their then level of ownership; or
(D) the approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
E. NOTICE OF TERMINATION. Any termination of the Executive's
employment by the Company or by the Executive (other than termination
pursuant to subsection (a) hereof) shall be communicated by written
Notice of Termination to the other party hereto in accordance with
Section 12. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so
indicated.
F. DATE OF TERMINATION. "Date of Termination" shall mean (i) if
the Executive's employment is terminated by his death, the date of his
death, (ii) if the Executive's employment is terminated pursuant to
subsection (b) above, thirty (30) days after Notice of Termination is
given (provided that the Executive shall not have returned to the
performance of his duties on a full-time basis during such thirty
(30)-day period), (iii) if the Executive's employment is terminated
pursuant to subsection (c) above, the date specified in the Notice of
Termination, and (iv) if the Executive's employment is terminated for any
other reason, the date on which a Notice of Termination is given;
provided, however, that, if within thirty (30) days after any Notice of
Termination is given the party receiving such Notice of Termination
notifies the other party that a dispute exists concerning the
termination, the Date of Termination shall be the date on which the
dispute is finally determined, either by mutual written agreement of the
parties, by a binding and final arbitration award or by a final judgment,
order or decree of a court of competent jurisdiction (the time for appeal
therefrom having expired and no appeal having been perfected).
G. INDEMNIFICATION AFTER TERMINATION. Notwithstanding any other
provision of this Agreement to the contrary, upon the Executive's
termination of employment hereunder for any reason, the Company shall
take such action necessary and appropriate to provide that the
Executive's rights to indemnification from the Company as provided by
applicable law, by the Company's charter and by-laws and by any agreement
between the Company and the Executive shall not
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be affected in any manner adverse to the Executive and shall be continued
in full force and effect for a period of at least six years following
such termination of employment.
VIII. COMPENSATION UPON TERMINATION OR DURING DISABILITY.
A. During any period that the Executive fails to perform his duties
hereunder as a result of incapacity due to physical or mental illness
("disability period"), the Executive shall continue to receive his full salary
at the rate then in effect for such period until his employment is terminated
for disability pursuant to Section 7(b) hereof, provided that payments so made
to the Executive shall be reduced by the sum of the amounts, if any, payable to
the Executive at or prior to the time of any such payment under disability
benefit plans of the Company or under the Social Security disability insurance
program, and which amounts were not previously applied to reduce any such
payment.
B. If the Executive's employment is terminated by his death, the Company
shall pay any amounts due to the Executive under Section 5 through the date of
his death in accordance with Section 11(b).
C. If the Executive's employment shall be terminated by the Company for
Cause or voluntarily by the Executive other for than Good Reason, the Company
shall pay the Executive his full salary through the Date of Termination at the
rate in effect at the time Notice of Termination is given and the Company shall
have no further obligations to the Executive relating to the provision of salary
under this Agreement.
D. If (A) in breach of this Agreement, the Company shall terminate the
Executive's employment other than for disability pursuant to Section 7(b) or
other than for Cause or (B) the Executive shall terminate his employment for
Good Reason, then
1. the Company shall pay the Executive (A) his full salary through the
Date of Termination at the rate in effect at the time Notice of Termination
is given, (B) a pro rata portion of any incentive bonus for the year in which
the Date of Termination occurs, such amount determined based on the target
bonus amount that the Executive would have received if all performance goals
(if any) had been attained in full and had his employment continued until the
end of such year, and on the number of full and partial months worked during
such year, and (C) all other unpaid
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amounts, if any, with respect to which the Executive has a vested interest
as of the Date of Termination under any compensation plan or program of
the Company, at the time such payments are due;
2. in lieu of any further salary payments to the Executive for periods
subsequent to the Date of Termination, the Company shall pay as liquidated
damages, in full settlement of the Company's obligations to the Executive
relating to the provision of salary and bonus under this Agreement, to the
Executive an amount equal to the product of (A) the sum of (1) the highest
annual salary rate in effect for the Executive in the 90 days immediately
preceding the Date of Termination and (2) the highest annual amount payable
to the Executive under the Company's annual bonus plans in respect of the
three calendar years preceding the calendar year in which such Date of
Termination occurs, and (B) the greater of the number of years (including
partial years) remaining in the term of employment hereunder or the number
two (2); such payment to be made in substantially equal monthly installments.
E. If the Executive shall terminate his employment under clause
(B) of subsection 7(d)(i) hereof, the Company shall pay the Executive his
full salary through the Date of Termination at the rate in effect at the
time Notice of Termination is given.
IX. NO MITIGATION. The Company agrees that, if the Executive's
employment with the Company terminates during the term of this Agreement,
the Executive is not required to seek other employment or to attempt in
any way to reduce any amounts payable to the Executive by the Company
hereunder. Further, the amount of any payment or benefit provided for in
this Agreement shall not be reduced by any compensation earned by the
Executive as the result of employment by another employer, by retirement
benefits, by offset against any amount claimed to be owed by the
Executive to the Company, or otherwise.
X. NONCOMPETITION/CONFIDENTIAL INFORMATION. The Executive agrees
that, in order to protect the Company's trade secrets in the field of
engineered materials (E.G., high technology, lightweight structural
materials and specialty chemicals and resins) and other products being
manufactured or marketed by the Company or developed for manufacture or
marketing at the time of the Executive's retirement or termination of
employment, or the trade secrets of any business acquired by the Company
within six months after retirement or termina-
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tion of such employment if said acquisition was in the process of
negotiation at the time of such retirement or termination (hereinafter
collectively designated the "Company's Business"), at all times prior to
his retirement or termination of employment and during so much of the
two-year period following such retirement or termination that the
Company, or any of its successors, assigns or affiliated companies
carries on any portion of the Company's Business, the Executive shall not
directly or indirectly, as a partner, substantial owner, employee,
associate, consultant, agent or otherwise, engage in any activity related
to or competitive with the Company's Business in any county in the State
of California, or in any other state, territory or foreign country within
which the Company carries on the Company's Business or in which any of
its products are sold either prior or subsequent to the date hereof. The
invalidity or unenforceability of any provision of this Section 10 shall
not affect the validity or enforceability of any other provision of this
Section 10, which shall remain in full force and effect.
XI. SUCCESSORS; BINDING AGREEMENT.
A. The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by
agreement in form and substance satisfactory to the Executive, to
expressly assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain
such assumption and agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle the
Executive to compensation from the Company in the same amount and on the
same terms as he would be entitled to hereunder if he terminated his
employment for Good Reason, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall
be deemed the Date of Termination. As used in this Agreement, "Company"
shall mean the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid which executes and delivers the
agreement provided for in this Section 11 or which otherwise becomes
bound by all the terms and provisions of this Agreement by operation of
law.
B. This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die while
any amounts would still be payable to him hereunder if he had continued
to live, all such amounts, unless
16
<PAGE>
otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the Executive's devisee, legatee, or other designee or,
if there be no such designee, to the Executive's estate.
XII. NOTICE. For the purposes of this Agreement, notices, demands and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive:
John J. Lee
72 Cummings Point Road
Stamford, CT 06902
If to the Company:
Hexcel Corporation
72 Cummings Point Road
Stamford, CT 06902
Attn: Board of Directors
or to such other address as any party may have furnished to the other in
writing in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
XIII. MISCELLANEOUS. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing signed by the Executive and such
officer of the Company as may be specifically designated by the Board.
No waiver by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. The validity, interpretation, construction and performance of
this Agreement shall
17
<PAGE>
be governed by the laws of the State of New York without regard to its
conflicts of law principles.
XIV. VALIDITY. The invalidity or unenforceability of any provision
or provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
XV. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
XVI. SURVIVORSHIP. Any rights and obligations of the parties set
forth in Sections 5(d), 5(e), 8, 10 of this Agreement shall survive any
termination of this Agreement.
XVII. ARBITRATION. Any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by
arbitration, conducted before a panel of three arbitrators, at a location
mutually agreed upon by the Company and the Executive which is situated
within 50 miles of the Company's headquarters, in accordance with the
rules of the American Arbitration Association then in effect. Judgment
may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that the Company shall be entitled to
seek a restraining order or injunction in any court of competent
jurisdiction to prevent any continuation of any violation of the
provisions of Section 10 of the Employment Agreement and the Executive
hereby consents that such restraining order or injunction may be granted
without the necessity of the Company's posting any bond, and provided
further that the Executive shall be entitled to seek specific performance
of his right to be paid until the Date of Termination during the pendency
of any dispute or controversy arising under or in connection with this
Agreement. The Company shall pay to the Executive all legal fees and
expenses incurred by the Executive in disputing in good faith any issue
relating to the termination of the Executive's employment or in seeking
in good faith to obtain or enforce any benefit or right provided by this
Agreement, PROVIDED, that either (i) the Executive eventually prevails on
at least one material issue which is a subject of such arbitration or
(ii) the Executive and the Company enter into a written settlement
agreement relating to one or more of such material issues prior to the
conclusion of any such arbitration. Such payments shall be made within
five (5) business days after delivery of the Executive's written re-
18
<PAGE>
quests for payment accompanied with such evidence of fees and expenses
incurred as the Company reasonably may require.
XVIII. ENTIRE AGREEMENT. This Agreement sets forth the entire
agreement of the parties hereto in respect of the subject matter
contained herein and supersedes all prior agreements, promises,
covenants, arrangements, communications, representations or warranties,
whether oral or written, by any officer, employee or representative of
any party hereto; and any prior agreement of the parties hereto
(including the employment agreement dated as of September 1, 1994 between
the Executive and the Company) in respect of the subject matter contained
herein is hereby terminated and cancelled).
19
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first above written.
HEXCEL CORPORATION
Attest:
By: /s/ DAVID WONG By: /s/ JUERGEN HABERMEIER
------------------- ----------------------------------
Name: Juergen Habermeier
Title: President
WITNESS: EXECUTIVE
/s/ MICHAEL BACAL /s/ JOHN J. LEE
------------------- ----------------------------------
John J. Lee
20
<PAGE>
John J. Lee: INTERESTS IN OTHER CORPORATIONS, ORGANIZATIONS AND PARTNERSHIPS.
1. Director of XTRA Corporation.
2. Chairman, President & CEO of Lee Development Corporation.
3. Trustee of Yale University.
4. Advisor to The Clipper Group.
5. Director of Aviva Petroleum Corp.
21
<PAGE>
Exhibit 10.14 (a)
<PAGE>
EMPLOYEE OPTION AGREEMENT
EMPLOYEE OPTION AGREEMENT, dated as of the Grant Date, by and between the
Optionee, residing at Address of Optionee and Hexcel Corporation (the
"Corporation").
W I T N E S S E T H:
WHEREAS, the Corporation has adopted the Hexcel Corporation Incentive Stock
Plan (the "Plan").
WHEREAS, the Executive Compensation Committee of the Board of Directors of
the Corporation (the "Committee") has determined that it is desirable and in the
best interest of the Corporation to grant to the Optionee a stock option as an
incentive for the Optionee to advance the interests of the Corporation.
NOW, THEREFORE, the parties agree as follows:
1. NOTICE OF GRANT. Attached hereto as Annex A and incorporated by reference
herein is a Notice of Grant. Unless otherwise provided herein, capitalized
terms used herein and set forth in such Notice of Grant shall have the meanings
ascribed to them on the Notice of Grant. Also attached hereto is the Plan; the
provisions of the Plan are incorporated by reference herein.
2. GRANT OF OPTION. Pursuant to the Plan and subject to the terms and
conditions set forth herein and therein, the Corporation hereby grants to the
Optionee the right and option (the "Option") to purchase all or any part of the
Option Shares of the Corporation's common stock, $.01 par value per share (the
"Common Stock"), which Option is not intended to qualify as an incentive stock
option, as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
3. PURCHASE PRICE. The purchase price per share of the Option Shares shall be
the Purchase Price.
1
<PAGE>
4. TERMS OF OPTION.
(a) EXPIRATION DATE. Subject to Section 4(c) below, the Option shall expire
on, and shall no longer be exercisable following, the tenth anniversary of
the Grant Date.
(b) VESTING PERIOD; EXERCISABILITY. Subject to Section 4(c) below, the
Option shall vest and become exercisable at the rate of (x) 33-1/3% of the
Option Shares on each of the first three anniversaries of the Grant Date, or
(y) if more rapid than under clause (x), (A) an aggregate of 33-1/3% of such
Option Shares on the fifth consecutive trading day on which the Fair Market
Value (as defined in the Plan) of the Common Stock remains at or above $12,
(B) an aggregate of 66-2/3% of the Option Shares on the fifth consecutive
trading day on which the Fair Market Value of the Common Stock remains at or
above $16 and (C) an aggregate of 100% of the Option Shares on the fifth
consecutive trading day on which the Fair Market Value of the Common Stock
remains at or above $20.
(c) TERMINATION OF EMPLOYMENT. If the Optionee's employment with the
Corporation is involuntarily terminated for Cause (as defined in that certain
Employment Agreement, dated as of the date hereof, by and between the
Optionee and the Corporation (the "Employment Agreement")) or the Optionee
voluntarily terminates his employment with the Corporation other than for
Good Reason (as defined in the Employment Agreement), the Optionee shall
forfeit the Option to the extent not yet vested as of the Date of Termination
(as defined in the Employment Agreement). The Option, to the extent vested
on the date of Termination, shall be exercisable for a period of 90 days
following the Date of Termination.
Notwithstanding any other provision contained herein or in the Plan, if the
Optionee's employment with the Corporation is involuntarily terminated other
than for Cause, the Optionee terminates employment for Good Reason, or the
Optionee dies or terminates employment due to disability (within the meaning
of Section 7(b) of the Employment Agreement), the Option shall become fully
and immediately vested and exercisable and shall remain exercisable for the
lesser of (A) one year following the Date of Termination, or, if applicable,
for one year following the Optionee's death or disability or (B) for the
remainder of the term of the Option.
5. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
2
<PAGE>
(a) The aggregate number of Option Shares and the Purchase Price shall be
appropriately adjusted by the Committee 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.
(b) Any adjustment under this Section 5 in the number of Option Shares shall
apply to only the unexercised portion of the Option. If fractions of a share
would result from any such adjustment, the adjustment shall be revised to the
next lower whole number of shares.
6. METHOD OF EXERCISING OPTION AND WITHHOLDING.
(a) The Option shall be exercised by the delivery by the Optionee to the
Corporation at its principal office (or at such other address as may be
established by the Committee) of written notice of the number of Option
Shares with respect to which the Option is exercised, accompanied by
payment in full of the aggregate Purchase Price for such Option Shares.
Payment for such Option Shares shall be made (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 Optionee; (iii) pursuant to a broker-assisted "cashless exercise"
program if established by the Corporation; or (iv) by a combination of the
methods described in (i) through (iii) above.
(b) The Corporation's obligation to deliver shares of Common Stock upon the
exercise of the Option shall be subject to the payment by the Optionee of
applicable federal, state and local withholding tax, if any. The Corporation
shall, to the extent permitted by law, have the right to deduct from any
payment of any kind otherwise due to the Optionee any federal, state or local
taxes required to be withheld with respect to such payment.
3
<PAGE>
7. TRANSFER AND INVESTMENT REPRESENTATION.
(a) The Option is not transferable otherwise than by will or the laws of
descent and distribution, and the Option may be exercised during the
Optionee's lifetime only by the Optionee. Any attempt to transfer the Option
in contravention of this subsection (a) is void AB INITIO. The Option shall
not be subject to execution, attachment or other process.
(b) The Optionee represents that, unless at the time of exercise of the
Option the issuance of the Option Shares to the Optionee is registered under
the Securities Act of 1933, as amended (the "Securities Act"), any and all
Option Shares purchased hereunder shall be acquired for investment only and
without a view to the resale or distribution thereof. If the issuance of the
Option Shares is not so registered, certificates for the Option Shares shall
bear a legend reciting the fact that such Option Shares may only be
transferred pursuant to an effective registration statement under the
Securities Act or an opinion of counsel to the Corporation (or an opinion of
counsel to the Optionee reasonably satisfactory to the Corporation) that such
registration is not required. The Corporation may also issue "stop transfer"
instructions with respect to such Option Shares while they are subject to
such restrictions.
(c) The Corporation shall use its best efforts to have the Option Shares
listed on each securities exchange on which the Common Stock is then listed
as promptly as possible. The Corporation shall not be obligated to issue or
sell any Option Shares until they have been listed on each securities
exchange on which the Common Stock is then listed.
(d) The Corporation agrees promptly to file with the Securities and Exchange
Commission a registration statement on Form S-8 covering the issuance of the
Option Shares pursuant to this Employee Option Agreement, and the Common
Stock to be issued upon exercise of this Option, to cause such registration
statement to become effective, and to keep such registration statement
effective for the period that this Option shall be outstanding and
exercisable. In the event the Corporation fails to maintain the
effectiveness of the Form S-8 registration statement and/or does not list the
Option Shares on an appropriate stock exchange, and as a consequence, the
Optionee is unable to sell his Option Shares, the Corporation hereby agrees,
subject to compliance with any contractual restrictions applicable to the
Corporation, to advance to the Optionee any funds that
4
<PAGE>
may be due by the Optionee to pay taxes (federal, state and/or local) that
may be incurred in connection with the exercise of the Option. The Optionee
agrees to reimburse the Corporation for any funds advanced by the Corporation
to the Optionee pursuant to the preceding sentence (together with the
Corporation's out-of-pocket interest costs thereon) out of proceeds derived
by the Optionee from the sale of said Option Shares.
8. NO RIGHTS IN OPTION SHARES. The Optionee shall have none of the rights of
a stockholder with respect to the Option shares unless and until issued upon
exercise of the Option.
9. NO RIGHT TO EMPLOYMENT. Nothing contained herein shall be deemed to confer
upon the Optionee any right to remain as an employee of the Corporation.
10. GOVERNING LAW/JURISDICTION. This Employee Option Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware
without reference to principles of conflict of laws.
11. RESOLUTION OF DISPUTES. Any disputes arising under or in connection with
this Employee Option Agreement shall be resolved by binding arbitration before a
single arbitrator, to be held in New York in accordance with the commercial
rules and procedures of the American Arbitration Association. Judgment upon the
award rendered by the arbitrator shall be final and subject to appeal only to
the extent permitted by law. Each party shall bear its or his own expenses
incurred in connection with any arbitration; PROVIDED, HOWEVER, the cost of the
arbitration, including without limitation, reasonable attorneys' fees of the
Optionee, shall be borne by the Corporation in the event the Optionee is the
prevailing party in the arbitration. Anything to the contrary notwithstanding,
each party hereto has the right to proceed with a court action for injunctive
relief or relief from violations of law not within the jurisdiction of an
arbitrator.
12. MISCELLANEOUS. This Employee Option Agreement cannot be changed or
terminated orally. This Employee Option Agreement and the Plan contain the
entire agreement between the parties relating to the subject matter hereof.
The section headings herein are intended for reference only and shall not
affect the interpretation hereof. This Employee Option Agreement is intended
to comply with Rule 16b-3 of the Securities Exchange Act of 1934, as amended,
and the provisions hereof shall be construed in a manner to so comply.
5
<PAGE>
ANNEX A
NOTICE OF GRANT
EMPLOYEE STOCK OPTION
HEXCEL CORPORATION INCENTIVE STOCK PLAN
The following employee of Hexcel Corporation, a Delaware corporation
("Hexcel") has been granted an employee stock option to purchase shares of the
Common Stock of Hexcel, $.01 par value, in accordance with the terms of this
Notice of Grant and the Employee Option Agreement attached.
The following is a summary of the principal terms of the employee stock
option which has been granted. The terms below shall have the meanings ascribed
to them below when used in the Employee Option Agreement attached.
- -------------------------------------------------------------------------------
Optionee: John J. Lee
- -------------------------------------------------------------------------------
Address of Optionee:
- -------------------------------------------------------------------------------
Employee Number:
- -------------------------------------------------------------------------------
Employee ID Number
- -------------------------------------------------------------------------------
Foreign Sub Plan, if applicable
- -------------------------------------------------------------------------------
Grant Date February 29, 1996
- -------------------------------------------------------------------------------
Purchase Price(1) $12.50
- -------------------------------------------------------------------------------
Aggregate Number of Shares 200,000
Granted (the "Option Shares")
- -------------------------------------------------------------------------------
- ----------------
(1) Fair Market Value of Common Stock on February 29, 1996.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereby agree to the terms of this Notice of
Grant and the Employee Option Agreement attached hereto and execute this Notice
of Grant as of the Grant Date.
HEXCEL CORPORATION
/s/ JOHN J. LEE By: /s/ JUERGEN HABERMEIER
- ----------------- ------------------------------------
Optionee Name Juergen Habermeier
Title: President
7
<PAGE>
Exhibit 10.14 (b)
<PAGE>
BANKRUPTCY COURT OPTION AGREEMENT
BANKRUPTCY COURT OPTION AGREEMENT, dated as of the Grant Date, by and between
the Optionee, residing at Address of Optionee and Hexcel Corporation (the
"Corporation").
W I T N E S S E T H:
WHEREAS, the Corporation has adopted the Corporation's Incentive Stock Plan
(the "Plan").
WHEREAS, the Hexcel Corporation Plan of Reorganization, dated as of November
7, 1994, as approved by the United States Bankruptcy Court, provides that the
Optionee be granted an option to purchase shares of Common Stock.
WHEREAS, the Executive Compensation Committee of the Board of Directors of
the Corporation (the "Committee") has determined that it is desirable and in the
best interest of the Corporation to grant to the Optionee a stock option in
accordance with the Plan of Reorganization.
NOW, THEREFORE, the parties agree as follows:
1. NOTICE OF GRANT. Attached hereto as Annex A and incorporated by reference
herein is a Notice of Grant. Unless otherwise provided herein, capitalized
terms used herein and set forth in such Notice of Grant shall have the meanings
ascribed to them on the Notice of Grant. Also attached hereto is the Plan; the
provisions of the Plan are incorporated by reference herein.
2. GRANT OF OPTION. Pursuant to the Plan and subject to the terms and
conditions set forth herein and therein, the Corporation hereby grants to the
Optionee the right and option (the "Option") to purchase all or any part of the
Option Shares of the Corporation's common stock, $.01 par value per share (the
"Common Stock"), which option is not intended to qualify as an incentive stock
option, as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
3. PURCHASE PRICE. The purchase price per share of the Option Shares shall be
the Purchase Price.
1
<PAGE>
4. TIME OF EXERCISE; TERM.
(a) The Option shall vest and become exercisable in 24 equal monthly
installments over the two-year period beginning on the Grant Date.
(b) The Option shall expire and cease to have any force or effect on the
third anniversary of the Grant Date.
5. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
(a) The aggregate number of Option Shares and the Purchase Price shall be
appropriately adjusted by the Committee 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.
(b) Any adjustment under this Section 5 in the number of Option Shares shall
apply to only the unexercised portion of the Option. If fractions of a share
would result from any such adjustment, the adjustment shall be revised to the
next lower whole number of shares.
6. METHOD OF EXERCISING OPTION AND WITHHOLDING.
(a) The Option shall be exercised by the delivery by the Optionee to the
Corporation at its principal office (or at such other address as may be estab
lished by the Committee) of written notice of the number of Option Shares
with respect to which the Option is exercised, accompanied by payment in full
of the aggregate Purchase Price for such Option Shares. Payment for such
Option Shares shall be made (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 (as defined in the Plan) equal to the total payment due from the
Optionee; (iii) pursuant to a broker-assisted "cashless exercise" program if
established by the Corporation; or (iv) by a combination of the methods
described in (i) through (iii) above.
2
<PAGE>
(b) The Corporation's obligation to deliver shares of Common Stock upon the
exercise of the Option shall be subject to the payment by the Optionee of
applicable federal, state and local withholding tax, if any. The Corporation
shall, to the extent permitted by law, have the right to deduct from any
payment of any kind otherwise due to the Optionee any federal, state or local
taxes required to be withheld with respect to such payment. Subject to the
right of the Committee to disapprove any such election and require the
withholding tax in cash, the Optionee shall have the right to elect to pay
the withholding tax with shares of Common Stock to be received upon exercise
of the Option or which are otherwise owned by the Optionee. Any election to
pay withholding taxes with stock shall be irrevocable once made.
7. DISABILITY, DEATH OR TERMINATION OF EMPLOYMENT; CHANGE IN CONTROL. If the
employment of the Optionee with the Corporation shall be terminated for any
reason whatsoever during the term of this Bankruptcy Court Option Agreement, the
Option shall become immediately and fully vested and exercisable for the
remainder of such term.
8. TRANSFER AND INVESTMENT REPRESENTATION.
(a) The Option is not transferable otherwise than by will or the laws of
descent and distribution, and the Option may be exercised during the
Optionee's lifetime only by the Optionee. Any attempt to transfer the Option
in contravention of this subsection (a) is void AB INITIO. The Option shall
not be subject to execution, attachment or other process.
(b) The Optionee represents that, unless at the time of exercise of the
Option the issuance of the Option Shares to the Optionee is registered under
the Securities Act of 1933, as amended (the "Securities Act") any and all
Option Shares purchased hereunder shall be acquired for investment only and
without a view to the resale or distribution thereof. If the issuance of the
Option Shares is not so registered, certificates for the Option Shares shall
bear a legend reciting the fact that such Option Shares may only be
transferred pursuant to an effective registration statement under the
Securities Act or an opinion of counsel to the Corporation (or an opinion of
counsel to the Optionee reasonably satisfactory to the Corporation) that such
registration is not required. The Corporation may also issue "stop transfer"
instructions with respect to such Option Shares while they are subject to
such restrictions.
3
<PAGE>
(c) The Corporation shall use its best efforts to have the Option Shares
listed on each securities exchange on which the Common Stock is then listed
as promptly as possible. The Corporation shall not be obligated to issue or
sell any Option Shares until they have been listed on each securities
exchange on which the Common Stock is then listed.
(d) The Corporation agrees promptly to file with the Securities and Exchange
Commission a registration statement on Form S-8 covering the issuance of the
Option Shares pursuant to this Bankruptcy Court Option Agreement, and the
Common Stock to be issued upon exercise of this Option, to cause such
registration statement to become effective, and to keep such registration
statement effective for the period that this Option shall be outstanding and
exercisable. In the event the Corporation fails to maintain the
effectiveness of the Form S-8 registration statement and/or does not list the
Option Shares on an appropriate stock exchange, and as a consequence, the
Optionee is unable to sell his Option Shares, the Corporation hereby agrees,
subject to compliance with any contractual restrictions applicable to the
Corporation, to advance to the Optionee any funds that may be due by the
Optionee to pay taxes (federal, state and/or local) that may be incurred in
connection with the exercise of the Option. The Optionee agrees to reimburse
the Corporation for any funds advanced by the Corporation to the Optionee
pursuant to the preceding sentence (together with the Corporation's out-of-
pocket interest costs thereon) out of proceeds derived by the Optionee from
the sale of said Option Shares.
9. NO RIGHTS IN OPTION SHARES. The Optionee shall have none of the rights of
a stockholder with respect to the Option shares unless and until issued upon
exercise of the Option.
10. NO RIGHT TO EMPLOYMENT. Nothing contained herein shall be deemed to confer
upon the Optionee any right to remain as an employee of the Corporation.
11. GOVERNING LAW/JURISDICTION. This Bankruptcy Court Option Agreement shall
be governed by and construed in accordance with the laws of the State of
Delaware without reference to principles of conflict of laws.
12. RESOLUTION OF DISPUTES. Any disputes arising under or in connection with
this Bankruptcy Court Option Agreement shall be resolved by binding arbitration
before a single arbitrator, to be held in New York in accordance with the
commercial rules and procedures of the American Arbitration Association.
Judgment
4
<PAGE>
upon the award rendered by the arbitrator shall be final and subject to
appeal only to the extent permitted by law. Each party shall bear its or his
own expenses incurred in connection with any arbitration; PROVIDED, HOWEVER,
the cost of the arbitration, including without limitation, reasonable
attorneys' fees of the Optionee, shall be borne by the Corporation in the
event the Optionee is the prevailing party in the arbitration. Anything to
the contrary notwithstanding, each party hereto has the right to proceed with
a court action for injunctive relief or relief from violations of law not
within the jurisdiction of an arbitrator.
13. MISCELLANEOUS. This Bankruptcy Court Option Agreement cannot be changed or
terminated orally. This Bankruptcy Court Option Agreement and the Plan contain
the entire agreement between the parties relating to the subject matter hereof.
The section headings herein are intended for reference only and shall not affect
the interpretation hereof. This Bankruptcy Court Option Agreement is intended
to comply with Rule 16b-3 of the Securities Exchange Act of 1934, as amended,
and the provisions hereof shall be construed in a manner to so comply.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereby agree to the terms of this Notice of
Grant and the Bankruptcy Court Option Agreement attached hereto and execute this
Notice of Grant as of the Grant Date.
HEXCEL CORPORATION
/s/ JOHN J. LEE By: /s/ JUERGEN HABERMEIER
- ------------------------ -----------------------
Optionee Name: Juergen Habermeier
Title: President
6
<PAGE>
ANNEX A
NOTICE OF GRANT
BANKRUPTCY COURT STOCK OPTION
HEXCEL CORPORATION INCENTIVE STOCK PLAN
The following employee of Hexcel Corporation, a Delaware corporation
("Hexcel") has been granted an employee stock option to purchase shares of the
Common Stock of Hexcel, $.01 par value, in accordance with the terms of this
Notice of Grant and the Bankruptcy Court Option Agreement attached.
The following is a summary of the principal terms of the employee stock
option which has been granted. The terms below shall have the meanings ascribed
to them below when used in the Bankruptcy Court Option Agreement attached.
- --------------------------------------------------------------------------------
Optionee: John J. Lee
- --------------------------------------------------------------------------------
Address of Optionee:
- --------------------------------------------------------------------------------
Employee Number:
- --------------------------------------------------------------------------------
Employee ID Number
- --------------------------------------------------------------------------------
Foreign Sub Plan, if applicable
- --------------------------------------------------------------------------------
Grant Date February 29, 1996
- --------------------------------------------------------------------------------
Purchase Price $5.05
- --------------------------------------------------------------------------------
Aggregate Number of Shares
Granted (the "Option Shares") 113,379
- --------------------------------------------------------------------------------
7
<PAGE>
Exhibit 10.14 (c)
<PAGE>
PERFORMANCE ACCELERATED
RESTRICTED STOCK UNIT AGREEMENT
This Performance Accelerated Restricted Stock Unit Agreement (the
"Agreement"), is entered into as of February 29, 1996 (the "Grant Date"), by and
between Hexcel Corporation, a Delaware corporation (collectively with its
subsidiaries, the "Company"), and John J. Lee (the "Grantee").
Pursuant to the Hexcel Corporation Incentive Stock Plan (the
"Plan"), the Executive Compensation Committee of the Board of Directors of the
Company (the "Committee") has determined that the Grantee shall be granted
Performance Accelerated Restricted Stock Units ("PARS") upon the terms and
subject to the conditions hereinafter contained. Capitalized terms used but not
defined herein shall have the meanings assigned to them in the Plan.
1. NUMBER OF SHARES. The Grantee is hereby granted 200,000 PARS,
subject to the restrictions set forth herein.
2. TERMS OF RESTRICTED STOCK. The grant of PARS provided in
Section 1 hereof shall be subject to the following terms, conditions and
restrictions:
(a) The Grantee shall not possess any incidents of ownership
(including, without limitation, dividend and voting rights) in shares of Common
Stock in respect of the PARS until such PARS have vested and been distributed to
the Grantee in the form of shares of Common Stock.
(b) The PARS and any interest therein may not be sold, assigned,
transferred, pledged, hypothecated or otherwise disposed of, except by will or
the laws of descent and distribution, prior to the distribution of the Common
Stock in respect of such PARS and subject to the conditions set forth in the
Plan and this Agreement.
3. VESTING AND CONVERSION OF PARS. The 200,000 PARS shall vest on
(x) the fifth anniversary of the Grant Date, or (y) on such earlier date to the
extent certain pre-determined performance criteria (the "PARS Goals") are
achieved. The PARS Goals shall be as follows: if earnings of the Company
before interest and taxes (as provided in the Company's audited financial
statements) ("EBIT") equal or exceed $70 million for any fiscal year of the
Company, an aggregate of 33-1/3% of such PARS shall become vested; if EBIT for
any
1
<PAGE>
fiscal year of the Company equals or exceeds $80 million, an aggregate of
66-2/3% of such PARS shall become vested; and if EBIT for any fiscal year of the
Company equals or exceeds $90 million, an aggregate of 100% of such PARS shall
become vested. Upon vesting, PARS shall be converted into an equivalent number
of shares of Common Stock that will be immediately distributed to the Grantee;
PROVIDED, HOWEVER, that an appropriate number of PARS shall not be converted and
distributed to the Grantee until the first business day of the first year in
which the Company is not precluded from deducting the associated compensation
expense under Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), but only to the extent such number of PARS would not be deductible
until such time. On each dividend payment date with respect to the Common Stock
subsequent to any PARS becoming fully vested but not yet converted or
distributed by virtue of the immediately preceding proviso, the Company shall
credit the Grantee with an additional number of fully vested whole and partial
PARS (assuming each such PARS unit was a share of Common Stock) equal in value
to the amount of dividends which the Grantee would have received on such
dividend payment date if all such vested PARS (including PARS previously
credited to the Grantee pursuant to this section) which had not yet been
converted into shares had been so converted prior to the record date of such
dividend. Such dividends will be credited as PARS as of the payment date of
such dividends and such PARS shall thereafter be treated in the same manner as
other PARS under this Agreement (the foregoing method of dividend crediting
being referred to herein as a "Dividend Equivalent").
Upon the distribution of the shares of Common Stock in respect of
the PARS, the Company shall issue to the Grantee or the Grantee's personal
representative a stock certificate representing such shares of Common Stock,
free of any restrictions.
4. TERMINATION OF EMPLOYMENT. Notwithstanding any other
provision contained herein or in the Plan, if the Grantee's employment with the
Company is involuntarily terminated other than for Cause (as such term is
defined in that certain Employment Agreement, dated as of the date hereof, by
and between the Company and the Grantee) (the "Employment Agreement")), the
Grantee terminates employment for Good Reason (as such term is defined in the
Employment Agreement), or the Grantee dies or terminates employment due to
disability (within the meaning of Section 7(b) of the Employment Agreement), all
PARS shall vest, be converted into shares of Common Stock and be immediately
distributed to the Grantee, PROVIDED, HOWEVER, that an appropriate number of
such PARS shall not be converted and distributed to the Grantee until the first
business
2
<PAGE>
day of the first year in which the Company is not precluded from deducting
the associated compensation expense under Section 162(m) of the Code,
but only to the extent such number of PARS would not be deductible until such
time; FURTHER, PROVIDED, that the Grantee shall be credited with the Dividend
Equivalent with respect to such PARS.
If the Grantee's employment with the Company is involuntarily
terminated for Cause or the Grantee voluntarily terminates his employment with
the Company other than for Good Reason, the Grantee shall forfeit all PARS
provided herein which have not yet become vested as of the Date of Termination
(as defined in the Employment Agreement). Any PARS which have vested as of the
Date of Termination shall be converted into shares of Common Stock and
immediately distributed to the Grantee, PROVIDED, HOWEVER, that an appropriate
number of such PARS shall not be converted and distributed to the Grantee until
the first business day of the first year in which the Company is not precluded
from deducting the associated compensation expense under Section 162(m) of the
Code, but only to the extent such number of PARS would not be deductible until
such time; FURTHER, PROVIDED, that the Grantee shall be credited with the
Dividend Equivalent with respect to such PARS.
5. EQUITABLE ADJUSTMENT. The aggregate number of shares of Common
Stock subject to the PARS shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a subdivi
sion 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
the 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 deems necessary or desirable to preserve
the intended benefits under this Agreement in the event of any other
reorganization, recapitalization, merger, consolidation, spin-off, extraordinary
dividend or other distribution or similar transaction.
6. TAXES. The Grantee shall pay to the Company promptly upon
request, and in any event at the time the Grantee recognizes taxable income in
respect of the PARS, an amount equal to the taxes the Company determines it is
required to withhold under applicable tax laws with respect to the PARS. Such
payment shall be made as provided in Section IX(f) of the Plan.
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<PAGE>
7. NO GUARANTEE OF EMPLOYMENT. Nothing set forth herein or in the
Plan shall confer upon the Grantee any right of continued employment for any
period by the Company, or shall interfere in any way with the right of the
Company to terminate such employment.
8. NOTICES. Any notice required or permitted under this Agreement
shall be deemed given when delivered personally, or when deposited in a United
States Post Office, postage prepaid, addressed, as appropriate, to the Grantee
at the last address specified in Grantee's employment records, or such other
address as the Grantee may designate in writing to the Company, or to the
Company, Attention: Corporate Secretary, or such other address as the Company
may designate in writing to the Grantee.
9. FAILURE TO ENFORCE NOT A WAIVER. The failure of either party
hereto to enforce at any time any provision of this Agreement shall in no way be
construed to be a waiver of such provision or of any other provision hereof.
10. GOVERNING LAW. This Agreement shall be governed by and
construed according to the laws of the State of Delaware, without regard to the
conflicts of laws provisions thereof.
11. INCORPORATION OF PLAN. The Plan is hereby incorporated herein
by reference and made a part of this Agreement, and this Agreement shall be
subject to the terms of the Plan, as it may be amended from time to time,
provided that such amendment of the Plan is made in accordance with Section X of
the Plan. The PARS granted herein constitute Awards within the meaning of the
Plan.
12. AMENDMENTS. This Agreement may be amended or modified at any
time by an instrument in writing signed by the parties hereto.
13. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be an original but all of which together shall
represent one and the same agreement.
4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date and year set forth above.
HEXCEL CORPORATION
By: /s/ JUERGEN HABERMEIER
-----------------------
Its: President
-----------------------
/s/ JOHN J. LEE
-----------------------
John J. Lee
5
<PAGE>
Exhibit 10.14 (d)
<PAGE>
SHORT-TERM OPTION AGREEMENT
SHORT-TERM OPTION AGREEMENT, dated as of the Grant Date, by and
between the Optionee, residing at Address of Optionee and Hexcel
Corporation (the "Corporation").
W I T N E S S E T H:
WHEREAS, the Corporation has adopted the Hexcel Corporation
Incentive Stock Plan (the "Plan").
WHEREAS, the Executive Compensation Committee of the Board of
Directors of the Corporation (the "Committee") has determined that it is
desirable and in the best interest of the Corporation to grant to the
Optionee a stock option as an incentive for the Optionee to advance the
interests of the Corporation.
NOW, THEREFORE, the parties agree as follows:
1. NOTICE OF GRANT. Attached hereto as Annex A and incorporated by
reference herein is a Notice of Grant. Unless otherwise provided herein,
capitalized terms used herein and set forth in such Notice of Grant shall
have the meanings ascribed to them on the Notice of Grant. Also attached
hereto is the Plan; the provisions of the Plan are incorporated by
reference herein.
2. GRANT OF OPTION. Pursuant to the Plan and subject to the terms and
conditions set forth herein and therein, the Corporation hereby grants to
the Optionee the right and option (the "Option") to purchase all or any
part of the Option Shares of the Corporation's common stock, $.01 par
value per share (the "Common Stock"), which Option is not intended to
qualify as an incentive stock option, as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
3. PURCHASE PRICE. The purchase price per share (the "Purchase Price")
of the Option Shares shall equal the Fair Market Value (as defined in the
Plan) as of the date of exercise of the Option.
4. TIME OF EXERCISE; TERM.
1
<PAGE>
(a) The Option shall be fully vested and exercisable as of the Grant Date.
(b) Subject to the earlier expiration as expressly provided in this
Section 4, the Option shall expire and cease to have any force or effect
ninety (90) days after the Grant Date (the "Expiration Date").
(c) If the Optionee's employment with the Corporation is terminated for
Cause (as defined in that certain Employment Agreement, dated as of the
date hereof, by and between the Optionee and the Corporation (the
"Employment Agreement")), the Option, to the extent not yet exercised as
of the Date of Termination (as defined in the Employment Agreement), shall
expire forthwith.
(d) If the employment of the Optionee with the Corporation shall be
terminated for any other reason, the Option may be exercised at any time
prior to the Expiration Date.
5. GRANT OF RELOAD OPTION. Upon each full or partial exercise of the
Option by the Optionee, the Optionee shall be granted automatically on
the date (or dates) of such exercise or exercises a new option (the
"Reload Option") for a number of shares of the Common Stock equal to the
number of Option Shares purchased upon such exercise, multiplied by two
(2). The Reload Option shall be evidenced by an Option Agreement
substantially in the form of Annex B hereto and shall be granted pursuant
to the Plan.
6. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
(a) The aggregate number of Option Shares and the Purchase Price shall be
appropriately adjusted by the Committee 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.
(b) Any adjustment under this Section 6 in the number of Option Shares
shall apply to only the unexercised portion of the Option. If fractions of
a share would result from any such adjustment, the adjustment shall be
revised to the next lower whole number of shares.
2
<PAGE>
7. METHOD OF EXERCISING OPTION AND WITHHOLDING.
(a) The Option shall be exercised by the delivery by the Optionee to the
Corporation at its principal office (or at such other address as may be
established by the Committee) of written notice of the number of Option
Shares with respect to which the Option is exercised, accompanied by
payment in full of the aggregate Purchase Price for such Option Shares.
Payment for such Option Shares shall be made 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.
(b) The Corporation's obligation to deliver shares of Common Stock upon
the exercise of the Option shall be subject to the payment by the Optionee
of applicable federal, state and local withholding tax, if any. The
Corporation shall, to the extent permitted by law, have the right to deduct
from any payment of any kind otherwise due to the Optionee any federal,
state or local taxes required to be withheld with respect to such payment.
8. TRANSFER AND INVESTMENT REPRESENTATION.
(a) The Option is not transferable otherwise than by will or the laws of
descent and distribution, and the Option may be exercised during the
Optionee's lifetime only by the Optionee. Any attempt to transfer the
Option in contravention of this subparagraph (a) is void AB INITIO. The
Option shall not be subject to execution, attachment or other process.
(b) The Optionee represents that, unless at the time of exercise of the
Option the issuance of the Option Shares to the Optionee is registered
under the Securities Act of 1933, as amended (the "Securities Act"), any
and all Option Shares purchased hereunder shall be acquired for investment
only and without a view to the resale or distribution thereof. If the
issuance of the Option Shares is not so registered, certificates for the
Option Shares shall bear a legend reciting the fact that such Option Shares
may only be transferred pursuant to an effective registration statement
under the Securities Act or an opinion of counsel to the Corporation (or an
opinion of counsel to the Optionee reasonably satisfactory to the
Corporation) that such registration is not required. The Corporation may
also issue "stop transfer" instructions with respect to such Option Shares
while they are subject to such restrictions.
3
<PAGE>
(c) The Corporation shall use its best efforts to have the Option Shares
listed on each securities exchange on which the Common Stock is then listed
as promptly as possible. The Corporation shall not be obligated to issue
or sell any Option Shares until they have been listed on each securities
exchange on which the Common Stock is then listed.
(d) The Corporation agrees promptly to file with the Securities and
Exchange Commission a registration statement on Form S-8 covering the
issuance of the Option Shares pursuant to this Short-Term Option Agreement,
and the Common Stock to be issued upon exercise of this Option, to cause
such registration statement to become effective, and to keep such
registration statement effective for the period that this Option shall be
outstanding and exercisable. In the event the Corporation fails to
maintain the effectiveness of the Form S-8 registration statement and/or
does not list the Option Shares on an appropriate stock exchange, and as a
consequence, the Optionee is unable to sell his Option Shares, the
Corporation hereby agrees, subject to compliance with any contractual
restrictions applicable to the Corporation, to advance to the Optionee any
funds that may be due by the Optionee to pay taxes (federal, state and/or
local) that may be incurred in connection with the exercise of the Option.
The Optionee agrees to reimburse the Corporation for any funds advanced by
the Corporation to the Optionee pursuant to the preceding sentence
(together with the Corporation's out-of-pocket interest costs thereon) out
of proceeds derived by the Optionee from the sale of said Option Shares.
9. NO RIGHTS IN OPTION SHARES. The Optionee shall have none of the
rights of a stockholder with respect to the Option shares unless and
until issued upon exercise of the Option.
10. NO RIGHT TO EMPLOYMENT. Nothing contained herein shall be deemed to
confer upon the Optionee any right to remain as an employee of the
Corporation.
11. GOVERNING LAW/JURISDICTION. This Short-Term Option Agreement shall
be governed by and construed in accordance with the laws of the State of
Delaware without reference to principles of conflict of laws.
12. RESOLUTION OF DISPUTES. Any disputes arising under or in connection
with this Short-Term Option Agreement shall be resolved by binding
arbitration before a single arbitrator, to be held in New York in
accordance with the commercial rules and procedures of the American
Arbitration Association. Judgment upon
4
<PAGE>
the award rendered by the arbitrator shall be final and subject to appeal
only to the extent permitted by law. Each party shall bear its or his
own expenses incurred in connection with any arbitration; PROVIDED,
HOWEVER, the cost of the arbitration, including without limitation,
reasonable attorneys' fees of the Optionee, shall be borne by the
Corporation in the event the Optionee is the prevailing party in the
arbitration. Anything to the contrary notwithstanding, each party hereto
has the right to proceed with a court action for injunctive relief or
relief from violations of law not within the jurisdiction of an
arbitrator.
13. MISCELLANEOUS. This Short-Term Option Agreement cannot be changed
or terminated orally. This Short-Term Option Agreement and the Plan
contain the entire agreement between the parties relating to the subject
matter hereof. The section headings herein are intended for reference
only and shall not affect the interpretation hereof. This Short-Term
Option Agreement is intended to comply with Rule 16b-3 of the Securities
Exchange Act of 1934, as amended, and the provisions hereof shall be
construed in a manner to so comply.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereby agree to the terms of this
Notice of Grant and the Short-Term Option Agreement attached hereto and execute
this Notice of Grant as of the Grant Date.
HEXCEL CORPORATION
/s/ JOHN J. LEE By: /s/ JUERGEN HABERMEIER
- ---------------------- ----------------------------------
Optionee Name: Juergen Habermeier
Title: President
6
<PAGE>
ANNEX A
NOTICE OF GRANT
SHORT-TERM STOCK OPTION
HEXCEL CORPORATION INCENTIVE STOCK PLAN
The following employee of Hexcel Corporation, a Delaware corporation
("Hexcel") has been granted an employee stock option to purchase shares
of the Common Stock of Hexcel, $.01 par value, in accordance with the
terms of this Notice of Grant and the Short-Term Option Agreement
attached.
The following is a summary of the principal terms of the employee
stock option which has been granted. The terms below shall have the
meanings ascribed to them below when used in the Short-Term Option
Agreement attached.
- ------------------------------------------------------------------------------
Optionee: John L. Lee
- ------------------------------------------------------------------------------
Address of Optionee:
- ------------------------------------------------------------------------------
Employee Number:
- ------------------------------------------------------------------------------
Employee ID Number
- ------------------------------------------------------------------------------
Foreign Sub Plan, if applicable
- ------------------------------------------------------------------------------
Grant Date February 29, 1996
- ------------------------------------------------------------------------------
Aggregate Number of Shares 100,000
Granted (the "Option Shares")
- ------------------------------------------------------------------------------
7
<PAGE>
Exhibit 10.14 (e)
<PAGE>
FORM OF RELOAD OPTION AGREEMENT
RELOAD OPTION AGREEMENT, dated as of the Grant Date, by and
between the Optionee, residing at Address of Optionee and Hexcel Corporation
(the "Corporation").
W I T N E S S E T H:
WHEREAS, the Corporation has adopted the Hexcel Corporation
Incentive Stock Plan (the "Plan").
WHEREAS, the Executive Compensation Committee of the Board of
Directors of the Corporation (the "Committee") has previously granted to the
Optionee a Short-Term Option, pursuant to a Short-Term Option Agreement, dated
as of February 29, 1996 (the "Short-Term Option Agreement"), which Short-Term
Option provides for, upon the exercise thereof, the grant of a new option,
subject to certain terms and conditions.
WHEREAS, the Optionee has exercised the Short-Term Option and is
in possession of all or certain of the shares of Common Stock (as defined below)
issued to him thereunder (the "Short-Term Option Shares") in accordance with its
terms and the terms of the Plan.
NOW, THEREFORE, the parties agree as follows:
1. NOTICE OF GRANT. Attached hereto as Annex A and incorporated by
reference herein is a Notice of Grant. Unless otherwise provided herein,
capitalized terms used herein and set forth in such Notice of Grant shall have
the meanings ascribed to them on the Notice of Grant. Also attached hereto is
the Plan; the provisions of the Plan are incorporated by reference herein.
2. GRANT OF OPTION. Pursuant to the Plan and subject to the terms
and conditions set forth herein and therein, the Corporation hereby grants to
the Optionee the right and option (the "Option") to purchase all or any part of
the Option Shares of the Corporation's common stock, $.01 par value per share
(the "Common Stock"), which Option is not intended to qualify as an incentive
stock option, as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
1
<PAGE>
3. PURCHASE PRICE. The purchase price per share of the Option
Shares shall be the Purchase Price.
4. TERMS OF OPTION.
(a) EXPIRATION DATE. Subject to Section 4(c) and 4(d) below,
the Option shall expire on, and shall no longer be exercisable
following, the tenth anniversary of the Grant Date.
(b) VESTING PERIOD; EXERCISABILITY. The Option shall vest and,
subject to Section 4(d), shall become non-forfeitable (but not
exercisable) at the rate of (x) 33-1/3% of the Option Shares on
each of the first three anniversaries of the Grant Date, or (y)
if more rapid than under clause (x), (A) an aggregate of 33-1/3%
of such Option Shares on the fifth consecutive trading day on
which the Fair Market Value (as defined in the Plan) of the
Common Stock remains at or above $12, (B) an aggregate of 66-2/3%
of such Option Shares on the fifth consecutive trading day on
which the Fair Market Value of the Common Stock remains at or
above $16 and (C) an aggregate of 100% of such Option Shares on
the fifth consecutive trading day on which the Fair Market Value
of the Common Stock remains at or above $20.
The Option shall become exercisable, but only to the extent
already vested pursuant to the foregoing, on the fourth
anniversary of the Grant Date or, if sooner, as provided in
Section 4(c) below.
(c) TERMINATION OF EMPLOYMENT. If the Optionee's employment
with the Corporation is involuntarily terminated for Cause (as
defined in that certain Employment Agreement, dated as of
February 29, 1996, by and between the Optionee and the
Corporation (the "Employment Agreement")) or the Optionee
voluntarily terminates his employment with the Corporation other
than for Good Reason (as defined in the Employment Agreement),
the Optionee shall forfeit the Option to the extent not yet
vested as of the Date of Termination (as defined in the
Employment Agreement). The Option, to the extent vested on the
Date of Termination, shall be exercisable for a period of 90 days
following the Date of Termination.
Notwithstanding any other provision contained herein or in the
Plan, if the Optionee's employment with the Corporation is
involuntarily terminated
2
<PAGE>
other than for Cause, the Optionee terminates employment
for Good Reason, or the Optionee dies or terminates
employment due to disability (within the meaning of
Section 7(b) of the Employment Agreement), the Option shall
become fully and immediately vested and exercisable and shall
remain exercisable for the lesser of (A) one year following the
Date of Termination, or, if applicable, for one year following
the Optionee's death or disability or (B) for the remainder of
the term of the Option.
d) AUTOMATIC CANCELLATION. Subject to Section 4(c) above, the
Option shall be immediately cancelled (automatically and without
any action taken by the Corporation) with respect to that number
of Option Shares subject to the Option (such number of Option
Shares being determined in accordance with the succeeding
sentence), effective immediately upon any sale, disposition or
purported assignment or transfer of any or all of the Short-Term
Option Shares prior to the earlier of the Optionee's termination
of employment with the Corporation and the fourth anniversary of
the Grant Date (as defined in the Short-Term Option Agreement).
The number of Option Shares so cancelled shall equal the number
of Short-Term Option Shares so sold, disposed of, assigned or
transferred prior to the earlier of the Optionee's termination of
employment with the Corporation and the fourth anniversary of the
Grant Date (as defined in the Short-Term Option Agreement),
multiplied by two (2). The Optionee shall promptly notify the
Corporation of any such sale, disposition, assignment or
transfer.
5. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
(a) The aggregate number of Option Shares and the Purchase Price
shall be appropriately adjusted by the Committee 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.
(b) Any adjustment under this Section 5 in the number of Option
Shares shall apply to only the unexercised portion of the Option.
If fractions of a share would result from any such adjustment,
the adjustment shall be revised to the next lower whole number of
shares.
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<PAGE>
6. METHOD OF EXERCISING OPTION AND WITHHOLDING.
(a) The Option shall be exercised by the delivery by the
Optionee to the Corporation at its principal office (or at such
other address as may be established by the Committee) of written
notice of the number of Option Shares with respect to which the
Option is exercised, accompanied by payment in full of the
aggregate Purchase Price for such Option Shares. Payment for
such Option Shares shall be made (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 Optionee; (iii) pursuant
to a broker-assisted "cashless exercise" program if established
by the Corporation; or (iv) by a combination of the methods
described in (i) through (iii) above.
(b) The Corporation's obligation to deliver shares of Common
Stock upon the exercise of the Option shall be subject to the
payment by the Optionee of applicable federal, state and local
withholding tax, if any. The Corporation shall, to the extent
permitted by law, have the right to deduct from any payment of
any kind otherwise due to the Optionee any federal, state or
local taxes required to be withheld with respect to such payment.
7. TRANSFER AND INVESTMENT REPRESENTATION.
(a) The Option is not transferable otherwise than by will or the
laws of descent and distribution, and the Option may be exercised
during the Optionee's lifetime only by the Optionee. Any attempt
to transfer the Option in contravention of this subsection (a) is
void AB INITIO. The Option shall not be subject to execution,
attachment or other process.
(b) The Optionee represents that, unless at the time of exercise
of the Option the issuance of the Option Shares to the Optionee
is registered under the Securities Act of 1933, as amended (the
"Securities Act"), any and all Option Shares purchased hereunder
shall be acquired for investment only and without a view to the
resale or distribution thereof. If the issuance of the Option
Shares is not so registered, certificates for the Option Shares
shall bear a legend reciting the fact that such Option Shares may
only be transferred pursuant to an effective registration
statement under the Securities Act or an opinion of counsel to
the Corporation (or an
4
<PAGE>
opinion of counsel to the Optionee reasonably satisfactory
to the Corporation) that such registration is not required.
The Corporation may also issue "stop transfer" instructions
with respect to such Option Shares while they are subject
to such restrictions.
(c) The Corporation shall use its best efforts to have the
Option Shares listed on each securities exchange on which the
Common Stock is then listed as promptly as possible. The
Corporation shall not be obligated to issue or sell any Option
Shares until they have been listed on each securities exchange on
which the Common Stock is then listed.
(d) The Corporation agrees promptly to file with the Securities
and Exchange Commission a registration statement on Form S-8
covering the issuance of the Option Shares pursuant to this
Reload Option Agreement, and the Common Stock to be issued upon
exercise of this Option, to cause such registration statement to
become effective, and to keep such registration statement
effective for the period that this Option shall be outstanding
and exercisable. In the event the Corporation fails to maintain
the effectiveness of the Form S-8 registration statement and/or
does not list the Option Shares on an appropriate stock exchange,
and as a consequence, the Optionee is unable to sell his Option
Shares, the Corporation hereby agrees, subject to compliance with
any contractual restrictions applicable to the Corporation, to
advance to the Optionee any funds that may be due by the Optionee
to pay taxes (federal, state and/or local) that may be incurred
in connection with the exercise of the Option. The Optionee
agrees to reimburse the Corporation for any funds advanced by the
Corporation to the Optionee pursuant to the preceding sentence
(together with the Corporation's out-of-pocket interest costs
thereon) out of proceeds derived by the Optionee from the sale of
said Option Shares.
8. NO RIGHTS IN OPTION SHARES. The Optionee shall have none of the
rights of a stockholder with respect to the Option shares unless and until
issued upon exercise of the Option.
9. NO RIGHT TO EMPLOYMENT. Nothing contained herein shall be deemed
to confer upon the Optionee any right to remain as an employee of the
Corporation.
10. GOVERNING LAW/JURISDICTION. This Reload Option Agreement shall
be governed by and construed in accordance with the laws of the State of
Delaware without reference to principles of conflict of laws.
5
<PAGE>
11. RESOLUTION OF DISPUTES. Any disputes arising under or in
connection with this Reload Option Agreement shall be resolved by binding
arbitration before a single arbitrator, to be held in New York in accordance
with the commercial rules and procedures of the American Arbitration
Association. Judgment upon the award rendered by the arbitrator shall be final
and subject to appeal only to the extent permitted by law. Each party shall
bear its or his own expenses incurred in connection with any arbitration;
PROVIDED, HOWEVER, the cost of the arbitration, including without limitation,
reasonable attorneys' fees of the Optionee, shall be borne by the Corporation in
the event the Optionee is the prevailing party in the arbitration. Anything to
the contrary notwithstanding, each party hereto has the right to proceed with a
court action for injunctive relief or relief from violations of law not within
the jurisdiction of an arbitrator.
12. MISCELLANEOUS. This Reload Option Agreement cannot be changed or
terminated orally. This Reload Option Agreement and the Plan contain the entire
agreement between the parties relating to the subject matter hereof. The
section headings herein are intended for reference only and shall not affect the
interpretation hereof. This Reload Option Agreement is intended to comply with
Rule 16b-3 of the Securities Exchange Act of 1934, as amended, and the
provisions hereof shall be construed in a manner to so comply.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereby agree to the terms of this Notice of
Grant and the Reload Option Agreement attached hereto and execute this Notice of
Grant as of the Grant Date.
HEXCEL CORPORATION
By:
- ---------------- -------------------------
Optionee Name:
Title:
7
<PAGE>
ANNEX A
NOTICE OF GRANT
RELOAD STOCK OPTION
HEXCEL CORPORATION INCENTIVE STOCK PLAN
The following employee of Hexcel Corporation, a Delaware
corporation ("Hexcel") has been granted an employee stock option to purchase
shares of the Common Stock of Hexcel, $.01 par value, in accordance with the
terms of this Notice of Grant and the Reload Option Agreement attached.
The following is a summary of the principal terms of the employee
stock option which has been granted. The terms below shall have the meanings
ascribed to them below when used in the Reload Option Agreement attached.
- -------------------------------------------------------------------------------
Optionee: John J. Lee
- -------------------------------------------------------------------------------
Address of Optionee:
- -------------------------------------------------------------------------------
Employee Number:
- -------------------------------------------------------------------------------
Employee ID Number
- -------------------------------------------------------------------------------
Foreign Sub Plan, if applicable
- -------------------------------------------------------------------------------
Grant Date [exercise date of STOP]
- -------------------------------------------------------------------------------
Purchase Price(1) $[purchase price of STOP]
- -------------------------------------------------------------------------------
Aggregate Number of Shares [200,000]
Granted (the "Option Shares")
- -------------------------------------------------------------------------------
8
<PAGE>
Exhibit 10.19
<PAGE>
M E M O R A N D U M
TO: Rod Jenks CC: Dave Wong
FROM: John Lee
DATE: January 31, 1996
SUBJ: TRANSITION EMPLOYMENT AGREEMENT
The following confirms the terms of the transition employment arrangements that
you and I agreed to around November 10, 1995. On November 20, 1995, I briefed
John Cheesmond and Peter Langerman and they are in general agreement with these
terms.
1. The Company has a need for your services for a period through the closing
of the Ciba Composites acquisition and the hiring of a new general counsel.
2. In order to provide a smooth transition, you have agreed to continue as an
employee of Hexcel until March 31, 1996 or such earlier date as the Company
may elect.
3. You will remain in your current position as Vice President - Legal, General
Counsel and Secretary reporting to John Lee.
4. In consideration for your past and continuing service, you will receive a
compensation package consisting of:
4.1 your current salary level of $180,000 per year prorated and payable in
the normal course, plus normal benefits;
4.2 bonus of $100,000 payable no later than 5 business days after the
earlier of the date of termination or March 31, 1996; Such bonus is in lieu
of any 1995 or 1996 bonus that may be otherwise payable.
4.3 guaranteed vesting of the second third of the 1995 option grant; Thus,
of the 39,000 stock options granted to you in 1995, you will be vested in
and be able to exercise 26,000 stock options (2/3 of 39,000). We will
extend the exercise period to January 10, 1997.
5. Upon termination of employment, you will execute and deliver such further
documents, instruments and agreements and shall do such further acts and
things as may be necessary or desirable and proper to effectuate the terms
hereof, including without limitation, in consideration and as a
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condition to the receipt of the transition compensation, a release of the
Company in the form it then uses pursuant to its severance policy (except
to the extent it is inconsistent with this Agreement). The Company also
agrees to indemnify you for acts as an employee and officer to the fullest
extent of Delaware law.
Please sign below to indicate your agreement with the terms of the transition
employment arrangements.
Signed:
/s/ RODNEY P. JENKS, JR. /s/ JOHN J. LEE
- ------------------------ -------------------------
Rodney P. Jenks, Jr. John J. Lee
CEO, Hexcel Corporation
2
<PAGE>
Exhibit 10.20 (a)
<PAGE>
UNIROCK MANAGEMENT CORPORATION
1228 FIFTEENTH STREET at LARIMER
SUITE 201
DENVER, COLORADO 80202
(303) 623-4500
FAX (303) 623-9006
October 27, 1995
Mr. Rodney P. Jenks
Vice President & General Counsel
Hexcel Corporation
5794 West Las Positas Blvd.
Pleasanton, California 94588
Dear Rod:
This is to confirm my conversations with you, John Lee, Bob Petrisko and
Claude Genin concerning UniRock Management Corporation ("UniRock") providing
consulting assistance to Hexcel Corporation ("Hexcel") relating to the
continuing Northrop Grumman relationship, the evaluation of a possible
transaction relating to Ciba's Brochier - Decines fabric operations and other
matters as agreed between management of Hexcel and UniRock. On the Northrop
Grumman matter, UniRock's primary contact will be Bob Petrisko, and on the
fabrics matter, Claude Genin; contacts on other matters will be determined upon
agreement of scope of work. We are aware that this arrangement has been
confirmed with Messrs. Langerman and Geller, as well.
UniRock will provide these services under a monthly retainer of $15,000,
commencing with the month of October, 1995. UniRock principals will track their
hours at their standard hourly rates:
Franklin S. Wimer $350
Scott H. Maierhofer $275
Laurel W. Kenny $175
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The first month of the retainer, October, is intended to cover work done
during that month, as well as work done earlier on the Northrop Grumman matter
but not yet compensated, including telephone conferences and a visit by Frank
Wimer to Pleasanton in late September to participate in a major meeting between
Hexcel and Northrop Grumman.
We will track hourly billing against the retainer. For the months of
November and December, to the extent that the amount of UniRock principal's
hours at the above rates cumulatively either exceeds or falls short of the
retainer for those months, we agree to revisit the issue of the amount of the
retainer after the first of the year.
The retainer will be paid monthly in advance (we will send Hexcel a monthly
invoice). Out of pocket expenses and hourly fees in excess of retainer will be
billed on a monthly basis in arrears. An hourly reconciliation of UniRock's time
will be directed to Bob Petrisko's attention monthly, regardless of the
designated contact. Hexcel will make available where possible the services of
its travel department to make arrangements for travel by UniRock employees.
Hexcel will furnish UniRock with such information as UniRock believes
appropriate to its assignments (all such information so furnished being the
"Information"). Hexcel recognizes and confirms that UniRock (i) will use and
rely primarily on the Information and on information available from primarily
generally recognized public sources in performing the services contemplated by
this letter agreement without having independently verified the same, (ii) does
not assume responsibility for the accuracy or completeness of the Information
and such other information, and (iii) will not make an appraisal of any assets
or liabilities of Hexcel. The obligations of UniRock to keep the Information
confidential shall be the same as that of any senior officer of Hexcel.
Hexcel shall indemnify UniRock to the fullest extent permitted for the
indemnification of agents of Hexcel under the General Corporation law of the
State of Delaware and Hexcel's Certificate of Incorporation, subject however, to
such limitations as are contained in such law or Certificate of Incorporation.
UniRock shall act as an independent contractor, and any duties of UniRock
arising out of its engagement pursuant to this letter agreement shall be owed
solely to Hexcel and not to any holder of Hexcel's securities.
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The retainer arrangement may be canceled by either party on 30 days'
notice. Notwithstanding any termination of this letter agreement, the
obligations of Hexcel to compensate UniRock, the provisions relating to
indemnification and the status of UniRock as an independent contractor, will
survive such termination.
This letter agreement constitutes the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof and
supersedes any and all prior agreements and understandings, both written and
oral, between the parties with respect to the subject matter hereof.
If this represents our understanding, please acknowledge that in the space
provided below.
Sincerely,
/s/ FRANKLIN S. WIMER
Franklin S. Wimer
President
/ck
Agreed and Acknowledged this
27th day of October, 1995.
/s/ RODNEY P. JENKS
- --------------------------
Rodney P. Jenks
3
<PAGE>
Exhibit 10.21
<PAGE>
GOVERNANCE AGREEMENT dated as of February 29, 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 and amended as of December 12, 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.
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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" (A) with respect to Voting Securities,
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 and (B) with respect to
the equity securities of a Ciba Entity, shall have the same meaning as
set forth in clause (A) above substituting the equity securities of such
Ciba Entity for Voting Securities and the total voting power of such Ciba
Entity for 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.
"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.
2
<PAGE>
"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
3
<PAGE>
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 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.
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"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
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<PAGE>
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.
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
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<PAGE>
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
7
<PAGE>
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 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.
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(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 such issuance that Ciba intends to acquire a
sufficient amount of Voting Securities within such 90-day period so that
it will Beneficially
9
<PAGE>
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.
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(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, or to be acted upon by,
stockholders, Ciba shall and shall cause any Ciba Entity, if applicable,
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 or
acted upon by stockholders so long as such matters were not submitted to
or acted upon by stockholders, without the concurrence of the Board (or
if with such concurrence so long as such concurrence is 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;
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(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) Hexcel shall present to stockholders for
approval at its first meeting of stockholders following the date of this
Agreement amendments to its by-laws reflecting the provisions of Article
II of this Agreement and such other matters as the parties may reasonably
agree. Those by-laws reflecting the provisions of Article II of this
Agreement 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
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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 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 non-
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material 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
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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 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
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<PAGE>
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 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).
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(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%, in each case, of the equity
securities 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
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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 Beneficially Owned the Voting Securities Beneficially
Owned by such Ciba Entity. Other than as permitted pursuant to the
proviso in the immediately preceding sentence, 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 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
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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 or violation and requesting
its cure, such other party may terminate its obligations under this
Agreement.
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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.
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
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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
CH 4002
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
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unrevoked written direction from such party), and the appropriate
confirmation is received.
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.
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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.
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.
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(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 /s/ JOHN M.D. CHEESMOND
-------------------------------------------
Name: John M.D. Cheesmond
Title: Head of Regional Finance and Control
by /s/ PETER RUDOLF
-------------------------------------------
Name: Peter Rudolf
Title: Senior Division Counsel
HEXCEL CORPORATION,
by /s/ WILLIAM P. MEEHAN
-------------------------------------------
Name: William P. Meehan
Title: Vice President, Chief Financial
Officer & Treasurer
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Exhibit 10.22
<PAGE>
REGISTRATION RIGHTS AGREEMENT dated as of February 29, 1996 by and
between CIBA-GEIGY LIMITED, a Swiss corporation ("Ciba"), and HEXCEL
CORPORATION, a Delaware corporation ("Hexcel").
WHEREAS Ciba, Ciba-Geigy Corporation, a New York corporation, and
Hexcel are parties to the Strategic Alliance Agreement dated as of September 29,
1995 (the "Strategic Alliance Agreement"), as amended;
WHEREAS Hexcel is simultaneously herewith issuing common stock to Ciba
and has agreed to provide certain registration rights therefor pursuant to the
Strategic Alliance Agreement;
WHEREAS Ciba or a Subsidiary thereof may hereafter acquire certain
additional securities of Hexcel in accordance with the terms of the Governance
Agreement dated as of the date hereof (the "Governance Agreement");
WHEREAS the parties hereto desire to set forth the terms and
conditions relating to the sale by means of public offerings of certain
securities of Hexcel owned by Ciba and its affiliates.
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:
SECTION 1. DEFINITIONS. Capitalized terms used herein without
definition shall have their respective meanings set forth in the Governance
Agreement. As used in this Agreement, the following terms shall have the
following meanings:
"BOARD" means the board of directors of Hexcel.
"CLOSING" has the meaning set forth in Section 2.01 of the Strategic
Alliance Agreement.
"COMMON STOCK" means the common stock of Hexcel, par value $0.01 per
share.
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"DEMAND REGISTRATION" has the meaning set forth in Section 3(a)
hereof.
"DEMAND REGISTRATION STATEMENT" has the meaning set forth in
Section 3(a) hereof.
"EXPIRATION DATE" means the date upon which all Registrable Securities
have been sold or can be sold without restriction, including volume and manner
of sale restrictions, under the Securities Act.
"FIRST INSTALLMENT" means the Installment that may be sold by Ciba and
the Ciba Entities in whole or in part pursuant to a Registration Statement at
any time on or after March 1, 1998.
"FORM S-3" means Form S-3 under the Securities Act or any successor
registration form or any similar registration form that permits, to no lesser
extent than permitted by Form S-3, the incorporation by reference of reports
filed by Hexcel under the Exchange Act.
"FOURTH INSTALLMENT" means the Installment that may be sold by Ciba
and the Ciba Entities in whole or in part pursuant to a Registration Statement
at any time on or after March 1, 2001.
"INSTALLMENT" means, as to each Installment Date, an aggregate of 25%
of the greater of (x) the total number of Shares and (y) the total number of
Registrable Securities outstanding as of such Installment Date; PROVIDED that
with respect to the Fourth Installment, the term "Installment" means all
Registrable Securities.
"INSTALLMENT DATE" means the date upon which the First Installment,
the Second Installment, the Third Installment or the Fourth Installment, as the
case may be, may be sold pursuant to a Registration Statement.
"MANAGING UNDERWRITERS" means the Underwriter or Underwriters that
manage or lead an underwritten offering.
"PIGGYBACK REGISTRATION" has the meaning set forth in Section 3(d)
hereof.
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"PROSPECTUS" means the prospectus included in any Registration
Statement (including a prospectus that discloses information previously omitted
from a prospectus filed as part of an effective registration statement in
reliance upon Rule 430A under the Securities Act), as amended or supplemented by
any prospectus supplement with respect to the terms of the offering of any
portion of the Registrable Securities covered by such Registration Statement,
and all amendments and supplements to the prospectus, including post-effective
amendments.
"REGISTRABLE SECURITIES" means, at any particular time, all Securities
then owned beneficially and of record by Ciba and the Ciba Entities.
"REGISTRATION PERIOD" means the period from March 1, 1998 until the
Expiration Date.
"REGISTRATION STATEMENT" means any registration statement, including
a Demand Registration Statement or a Shelf Registration Statement, filed by
Hexcel with the SEC under the Securities Act that covers some or all Registrable
Securities, and any amendments or supplements thereto, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all documents and other materials incorporated by reference
therein.
"SECOND INSTALLMENT" means the Installment that may be sold by Ciba
and the Ciba Entities in whole or in part pursuant to a Registration Statement
at any time on or after March 1, 1999 and any Registrable Securities in respect
of the First Installment that have not been sold prior to March 1, 1999 pursuant
to a Registration Statement.
"SECURITIES" means the Shares and any additional shares of Common
Stock purchased or otherwise acquired in accordance with the Governance
Agreement by Ciba or any Ciba Entity after the Closing or issuable upon
exercise, conversion or exchange of any options, rights or securities purchased
or otherwise acquired in accordance with the Governance Agreement by Ciba or any
Ciba Entity after the Closing.
"SHARES" means the shares of Common Stock issued by Hexcel at the
Closing pursuant to the Strategic Alliance Agreement.
"SHELF REGISTRATION" means a registration effected pursuant to
Section 2 hereof.
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"SHELF REGISTRATION STATEMENT" means a "shelf" registration statement
on Form S-3 filed by Hexcel pursuant to the provisions of Section 2 hereof with
the SEC under Rule 415 under the Securities Act, or any similar rule that may be
adopted by the SEC, that covers some or all of the Registrable Securities, and
any amendments and supplements to such Registration Statement, including post-
effective amendments, and including the Prospectus contained therein, all
exhibits thereto and all documents and other materials incorporated by reference
therein and any additional such Registration Statements filed as contemplated by
Section 2.
"THIRD INSTALLMENT" means the Installment that may be sold by Ciba and
the Ciba Entities in whole or in part pursuant to a Registration Statement at
any time on or after March 1, 2000 and any Registrable Securities in respect of
prior Installments that have not been sold prior to March 1, 2000 pursuant to a
Registration Statement.
"UNDERWRITER" means any underwriter of Registrable Securities in
connection with an offering thereof pursuant to a Registration Statement.
SECTION 2. SHELF REGISTRATION. If Hexcel at any time during the
Registration Period is eligible to use Form S-3 and then for so long as Hexcel
is so eligible, Hexcel shall be subject to the provisions of this Section 2 as
follows:
(a) Hexcel shall prepare and, not later than 60 days prior to
March 1, 1998, shall file with the SEC, and thereafter shall use its
commercially reasonable efforts to cause to be declared effective under the
Securities Act on or prior to March 1, 1998, a Shelf Registration Statement
relating to the offer and sale by Ciba and the Ciba Entities of all Registrable
Securities permitted to be registered on Form S-3 as part of such Shelf
Registration Statement in a manner elected by Ciba and set forth in such Shelf
Registration Statement; PROVIDED, HOWEVER, that Ciba and the Ciba Entities may
offer and sell pursuant to such Shelf Registration Statement Registrable
Securities relating to a given Installment only on or after the Installment Date
with respect to such Installment. No securities other than Registrable
Securities shall be included in any such initial Shelf Registration Statement or
any additional Shelf Registration Statement with respect thereto without the
consent of Ciba, which consent shall not be unreasonably withheld.
(b) Hexcel shall use commercially reasonable efforts to keep the
Shelf Registration Statement continuously effective during the Registration
Period.
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(c) Without limiting the foregoing, Hexcel shall be deemed not to
have made commercially reasonable efforts to keep the Shelf Registration
Statement effective during the Registration Period if Hexcel voluntarily takes
any action that would result in Ciba or any Ciba Entity not being able to offer
and sell Registrable Securities that are then eligible under this Agreement to
be offered and sold unless (i) such action is required by applicable law, rule,
regulation, or legal proceeding or (ii) such action is consistent with the
provisions of Section 5 hereof.
(d) Subject to Section 5 hereof, if the Shelf Registration Statement
ceases to be effective for any reason at any time during the Registration
Period, Hexcel shall use its commercially reasonable efforts to obtain the
prompt withdrawal of any order suspending the effectiveness thereof, and shall
(i) within 60 days of such cessation of effectiveness, amend the Shelf
Registration Statement in a manner reasonably expected to obtain the withdrawal
of the order suspending the effectiveness thereof, or (ii) file an additional
Shelf Registration Statement subsequent to the expired or ineffective Shelf
Registration Statement covering the Registrable Securities. If any additional
Shelf Registration Statement is filed, Hexcel shall use its commercially
reasonable efforts to cause such Shelf Registration Statement to be declared
effective as soon as practicable after such filing and to keep such Shelf
Registration Statement continuously effective for the remainder of the
Registration Period.
(e) Subject to Section 5 hereof, Hexcel shall supplement and amend
any Shelf Registration Statement if (i) required by the SEC or the rules,
regulations or instructions applicable to such Shelf Registration Statement,
(ii) otherwise required by the Securities Act or (iii) reasonably requested by
Ciba or by the Managing Underwriters with respect to an underwritten offering of
such Registrable Securities.
(f) As soon as practicable after determining that Registrable
Securities permitted to be included on Form S-3 in a Shelf Registration
Statement have not been so included, Hexcel shall file a subsequent Shelf
Registration Statement covering all such unregistered Registrable Securities
that includes a combined Prospectus permitting the inclusion in such Prospectus
of all Registrable Securities eligible to be sold thereunder, including
Registrable Securities included in a previously filed Registration Statement,
PROVIDED that no such subsequent Shelf Registration Statement need be filed for
Registrable Securities representing less than 1% of the then outstanding Common
Stock unless Ciba informs Hexcel that Ciba or any Ciba Entity currently intends
to sell such Registrable Securities.
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(g) If at any time or from time to time Ciba or any Ciba Entity
desires to sell Registrable Securities in an underwritten offering pursuant to a
Shelf Registration Statement, the Managing Underwriters shall be selected by
Ciba; PROVIDED that such Managing Underwriters shall be nationally recognized
investment banking firms and shall be reasonably satisfactory to Hexcel.
SECTION 3. DEMAND AND PIGGYBACK REGISTRATIONS. If at any time during
the Registration Period Hexcel is not eligible to use Form S-3 then so long as
Hexcel is not so eligible Hexcel shall be subject to the provisions of this
Section 3 as follows:
(a) Subject to Section 5 hereof, upon the written request of Ciba
requesting that Hexcel effect the registration under the Securities Act of an
offering of that number of Registrable Securities specified by Ciba not to
exceed the amount then permitted to be sold as part of the relevant Installment
and specifying the holders who plan to participate in such offering and the
intended method or methods of disposition of such Registrable Securities, Hexcel
shall use its commercially reasonable efforts to effect the registration of the
offering of such Registrable Securities under the Securities Act, as soon as
practicable (in accordance with such intended method or methods of disposition)
(any such registration is hereinafter referred to as a "Demand Registration").
(b) Hexcel shall not be deemed to have effected a Demand Registration
pursuant to this Section 3 unless the applicable Demand Registration Statement
is declared effective under the Securities Act.
(c) If Hexcel shall have previously effected (i) a Demand
Registration pursuant to this Section 3, (ii) a Shelf Registration pursuant to
Section 2 hereof or (iii) an underwritten offering pursuant to a Shelf
Registration Statement, or if any offering of Registrable Securities is
registered in a Piggyback Registration (as hereinafter defined) pursuant to
Section 3(d) hereof and such offering is consummated (without having been
reduced in size pursuant to Section 3(d)(ii)), then in each such case Hexcel
shall not be required to effect a subsequent Demand Registration until a period
of at least 120 days shall have elapsed from (i) the effective date of the
Registration Statement used in connection with such previous Shelf, Demand or
Piggyback Registration or (ii) the consummation of such underwritten offering
pursuant to a Shelf Registration Statement.
(d) If Hexcel at any time during the Registration Period proposes to
register an underwritten public offering for cash or cash equivalents under the
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Securities Act (other than pursuant to a registration statement on Form S-4 or
S-8 or any successor or substantially similar forms), that will include
disclosure sufficient to offer its common equity securities (or any security
with respect to which common equity securities may be issuable upon exercise,
conversion or exchange thereof), Hexcel shall each such time give prompt written
notice to Ciba and each Ciba Entity identified in Section 9(h), as updated from
time to time, of Hexcel's intention to do so, briefly describing such offering
and specifying the form and manner and the other relevant facts involved in such
proposed registration (including, if known, the identity of the Managing
Underwriter and whether such offering will be pursuant to a "best efforts" or
"firm commitment" underwriting). Upon the written request of Ciba delivered to
Hexcel within 10 business days after such notice shall have been given to Ciba
(which request shall specify the Registrable Securities intended to be disposed
of by Ciba and each Ciba Entity and the intended method of disposition thereof),
Hexcel shall use its commercially reasonable efforts to include in the
registration statement relating to such offering all Registrable Securities
(which are then eligible for sale by Ciba and the Ciba Entities pursuant to a
Registration Statement) that Hexcel has been so requested to register by Ciba
(in accordance with the intended methods of distribution thereof as aforesaid)
(such registration being hereafter referred to as a "Piggyback Registration");
PROVIDED, HOWEVER, that:
(i) Hexcel shall have the right, exercisable in Hexcel's sole and
absolute discretion by written notice to Ciba at any time prior to the
effectiveness of the Registration Statement filed in connection with such
Piggyback Offering, to abandon or delay an offering giving rise to
Piggyback Registration rights, without obligation or liability to Ciba and
the Ciba Entities (except to the extent of any registration expenses
required to be paid by Hexcel pursuant to Section 6 hereof), without
prejudice, however, to the right of Ciba to request that such registration
be effected immediately as a Demand Registration under and pursuant to the
terms of Section 3(a) and subject to the provisions of Sections 3(c) and 5
hereof;
(ii) if the Managing Underwriter of such proposed Piggyback
Registration offering shall advise Hexcel in writing that, in the judgment
of such Managing Underwriter, the inclusion in any such offering of some or
all of the securities (including Registrable Securities) sought to be
registered by Persons other than Hexcel (or, if applicable, the Person
whose demand registration rights required the filing of the registration
statement relating to such offering) creates a substantial risk that the
proceeds or price per security that Hexcel or Persons other than Hexcel
will derive from such
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offering will be reduced and/or that the number of securities included
in such offering (including those sought to be included at the insistence
of Hexcel and any other Persons entitled to participate in such offering)
is too large a number to be reasonably sold, or the Managing Underwriter
of such underwritten offering shall inform Hexcel in writing of its opinion
that the number of securities to be included in such offering would
materially adversely affect its ability to effect such offering (such
opinion shall state the reasons therefor and the approximate number of
securities that may be included in such offering without such effect),
Hexcel shall use its commercially reasonable efforts to register an
offering of that number of securities that Hexcel is so advised can be
sold in such offering without such risk or effect, which shall consist of
the following number of securities sought to be registered by each
participant (which term shall include Hexcel, Ciba, each Ciba Entity, and
any other Person seeking to include securities in such registration)
(A) FIRST, the securities Hexcel proposes to sell or, if applicable, the
securities proposed to be sold by a participant the exercise of whose
demand registration right required the filing of the registration
statement, (B) SECOND, the securities, if any, requested to be included by
holders of piggyback registration rights granted pursuant to the
registration rights agreement between Mutual Series Fund Inc. and Hexcel
dated as of February 9, 1995, (C) THIRD, the Registrable Securities
requested to be included by Ciba and the Ciba Entities and the securities,
if any, requested to be included by "Eligible Holders" pursuant to Hexcel's
Registration Rights Agreement for Affiliates dated as of February 9, 1995,
pro rata based on the number of securities requested to be included by each
such Person and (D) FOURTH, the securities requested to be included by any
other Person; and
(iii) if the Managing Underwriter of such proposed Piggyback
Registration offering shall advise Hexcel in writing that, in the judgment
of such Managing Underwriter, the inclusion of any Registrable Securities
in such offering of a type, class or series, as the case may be, different
from that of the securities originally intended to be included in such
offering would materially adversely affect the success of the offering of
such securities originally intended to be so included, then Hexcel shall
promptly advise Ciba thereof and may require, by written notice to Ciba
accompanying such advice, that such different Registrable Securities be
excluded from such offering to the extent the inclusion thereof could
adversely affect such offering.
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SECTION 4. REGISTRATION PROCEDURES. In connection with any
Registration Statement the following provisions shall apply:
(a) Hexcel shall furnish to Ciba and each Ciba Entity set forth in
Section 9(h), as updated from time to time, prior to the filing thereof with the
SEC, a copy of any Registration Statement (including any preliminary prospectus
contained therein), and each amendment thereto and each amendment or supplement,
if any, to the Prospectus included therein and shall reflect in each such
document, when so filed with the SEC, such comments as Ciba and each Ciba Entity
set forth in Section 9(h), as updated from time to time, reasonably may propose.
(b) Hexcel shall ensure that (i) any Registration Statement and any
amendment thereto and any Prospectus forming part thereof and any amendment or
supplement thereto complies as to form in all material respects with the
Securities Act (ii) any Registration Statement and any amendment thereto does
not, when it becomes effective, contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading and (iii) subject to Section 5
hereof, any Prospectus forming part of any Registration Statement, and any
amendment or supplement to such Prospectus, does not include an untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading other than, in the case of clauses (ii) and (iii), any such
untrue statement or omission made therein in reliance upon and conformity with
written information furnished to Hexcel or its representatives or advisors by or
on behalf of Ciba or any Ciba Entity specifically for inclusion therein.
(c) Hexcel shall promptly advise Ciba and each Ciba Entity set forth
in Section 9(h), as updated from time to time, and, if requested by Ciba,
promptly confirm such advice in writing:
(i) when a Registration Statement and any amendment or supplement
thereto has been filed with the SEC and when a Registration Statement or
any post-effective amendment thereto has become effective;
(ii) of any request by the SEC for amendments or supplements to any
Registration Statement or the Prospectus included therein or for additional
information in connection therewith;
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(iii) of the issuance by the SEC of any stop order suspending the
effectiveness of any Registration Statement or the initiation of any
actions or proceedings for that purpose;
(iv) of the receipt by Hexcel of any notification with respect to the
suspension of the qualification of the Registrable Securities included
therein for sale in any jurisdiction or the initiation or threatening of
any action or proceeding for such purpose; and
(v) to the extent known to Hexcel, of the happening of any event that
requires the making of any changes in any Registration Statement or
Prospectus so that, as of the date of such event, the statements therein
are not misleading and do not omit to state a material fact required to be
stated therein or necessary to make the statements therein (in the case of
the Prospectus, in light of the circumstances under which they were made)
not misleading.
(d) subject to Section 5 hereof, Hexcel shall use its commercially
reasonable efforts to obtain the withdrawal of any order suspending the
effectiveness of any Registration Statement at the earliest possible time.
(e) Hexcel shall furnish to Ciba, without charge, three copies of
each Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, and, if Ciba so requests in writing, all
exhibits thereto (including those incorporated therein by reference).
(f) Hexcel shall furnish Ciba, without charge, copies of any and all
transmittal letters or other correspondence with the SEC or any other
governmental entity relating to a Registration Statement or the public offering
of Hexcel's securities thereunder.
(g) Hexcel shall, during the Registration Period, deliver to Ciba and
each Ciba Entity, without charge, as many copies of the Prospectus (including
each preliminary Prospectus) included in such Registration Statement and any
amendment or supplement thereto as such Person may reasonably request; and
subject to Section 5 below and Ciba's and each Ciba Entity's compliance with its
obligations under Section 4(l), Hexcel consents to the use of the Prospectus or
any amendment or supplement thereto by each such Person in connection with the
offering and sale of the Registrable Securities covered by the Prospectus or any
amendment or supplement thereto.
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(h) Prior to any offering of Registrable Securities pursuant to any
Registration Statement, Hexcel shall use its commercially reasonable efforts to
register or qualify or cooperate with Ciba and each Ciba Entity and their
counsel in connection with the registration or qualification of such Registrable
Securities for offer and sale under the securities, Blue Sky or similar laws of
such jurisdictions as Ciba reasonably requests in writing and Hexcel shall use
its commercially reasonable efforts to do any and all other acts or things
necessary or advisable to enable the offer and sale in such jurisdictions of the
Registrable Securities covered by such Registration Statement; PROVIDED,
HOWEVER, that Hexcel shall not be required to qualify generally to do business
in any jurisdiction where it is not then so qualified or to take any action
which would subject it to general service of process or to taxation in any such
jurisdiction where it is not then so subject.
(i) Hexcel shall cooperate with Ciba and each Ciba Entity to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold pursuant to any Registration Statement in
accordance with the Governance Agreement free of any restrictive legends and in
such denominations and registered in such names as requested prior to such
sales.
(j) Subject to Section 5 hereof, upon the occurrence of any event
contemplated by paragraph (c)(v) above, Hexcel shall use its commercially
reasonable efforts to promptly prepare a post-effective amendment to any
Registration Statement or an amendment or supplement to the related Prospectus
or file any other required document so that, as thereafter delivered to
purchasers of the Securities included therein, the Prospectus will not include
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein (in the case of the Prospectus, in the
light of the circumstances under which they were made) not misleading, it being
understood that the provisions of Section 7 shall apply to any such statement or
omission.
(k) Hexcel shall comply in all material respects with all applicable
rules and regulations of the SEC and shall make generally available to Ciba and
the Ciba Entities as soon as practicable after the effective date of the
applicable Registration Statement an earnings statement satisfying the
provisions of Section 11(a) of the Securities Act and Rule 158 under the
Securities Act.
(l) Each holder of Registrable Securities that plans to participate
in a distribution pursuant to a Registration Statement shall furnish to Hexcel
such information regarding such Person and its affiliates and the distribution
of such Registrable Securities as Hexcel may from time to time reasonably
require for
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inclusion in such Registration Statement. Ciba shall ensure that such
information at the time any Registration Statement and any amendment thereto
becomes effective, and at the time any Prospectus or supplement thereto
previously reviewed by Ciba forming a part of any Registration Statement is
delivered in any offering of Registrable Securities, shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein (in the case of
the Prospectus, in light of the circumstances which the were made) not
misleading. Ciba shall advise Hexcel and, if requested by Hexcel, confirm such
advice in writing in the event that Ciba or any Ciba Entity becomes aware of the
happening of any event that requires the making of any changes in a Registration
Statement or Prospectus so that as of the date of such event the statements
therein provided by Ciba and the Ciba Entities specifically for inclusion
therein are not misleading and do not omit to state a material fact required to
be stated therein or necessary to make the statements therein (in the case of
the Prospectus, in light of the circumstances under which they were made) not
misleading.
(m) Subject to Section 5 below, Hexcel shall, if requested, promptly
incorporate in a Prospectus supplement or post-effective amendment to a
Registration Statement, such information, if any, as the Managing Underwriters,
Ciba and Hexcel reasonably agree should be included therein and shall make all
required filings of such Prospectus supplement or post-effective amendment as
soon as practicable following notification of the matters to be incorporated in
such Prospectus supplement or post-effective amendment.
(n) If requested by Ciba in connection with the offering and sale of
Registrable Securities pursuant to a Registration Statement, Hexcel shall enter
into one or more underwriting agreements with the Managing Underwriters selected
in accordance with Section 2(g) above. Any such underwriting agreement shall
contain such indemnities and other terms and agreements as are then customarily
included in underwriting agreements relating to secondary public offerings;
PROVIDED that in no event shall the indemnification provisions and procedures in
such underwriting agreements be less favorable to the Managing Underwriters than
those contained in Section 7 hereof.
(o) Hexcel shall (i) make reasonably available for inspection during
normal business hours by Ciba, any Underwriter participating in any disposition
pursuant to a Registration Statement, and any attorney, accountant or other
agent or representative retained by Ciba or any such Underwriter all relevant
financial and other records, pertinent corporate documents and properties of
Hexcel and its
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Subsidiaries; (ii) cause Hexcel's officers, directors and employees to supply
all relevant information reasonably requested by Ciba or any such
Underwriter, attorney, accountant, agent or representative in connection with
any such Registration Statement as is customary for similar due diligence
examinations; PROVIDED, HOWEVER, that all such information that is designated
in writing by Hexcel as confidential at the time of delivery of such
information shall be kept confidential by Ciba and any such Underwriter,
attorney, accountant, agent or representative, unless and to the extent that
(x) disclosure is, in the opinion of counsel to the disclosing party,
required to be made in connection with a court proceeding or required by law
or (y) such information becomes available to the public generally or through
a third party without an accompanying obligation of confidentiality and other
than as a result of a breach of this confidentiality provision; (iii) make
such representations and warranties to the holders of Registrable Securities
covered by such Registration Statement and the Underwriters, if any, in form,
substance and scope as are then customarily made by issuers to Underwriters
in underwritten secondary public offerings by an affiliate; (iv) use its
commercially reasonable efforts to obtain opinions of counsel to Hexcel and
updates thereof addressed to each selling holder of Registrable Securities
and the Underwriters in customary form and covering such matters as are then
customarily covered in opinions requested in underwritten secondary public
offerings by an affiliate and such other matters as may be reasonably
requested by the Underwriters; (v) use its commercially reasonable efforts to
obtain "cold comfort" letters and updates thereof from the independent
certified public accountants of Hexcel (and, if necessary, any other
independent certified public accountants of any Subsidiary of Hexcel or of
any business acquired by Hexcel for which financial statements and financial
data are, or are required to be, included in a Registration Statement, it
being understood that Ciba shall cooperate with Hexcel in obtaining such
letters and updates from the independent certified public accountants for the
business acquired by Hexcel pursuant to the Strategic Alliance Agreement),
addressed to each holder of Registrable Securities and the Underwriters, if
any, in customary form and covering matters of the type then customarily
covered in "cold comfort" letters in connection with underwritten secondary
public offerings by an affiliate; and (vi) deliver such documents and
certificates as may be reasonably requested by Ciba and the Managing
Underwriters, if any, including any customary condition contained in the
underwriting agreement entered into by Hexcel at Ciba's request. The
foregoing actions set forth in clauses (iii), (iv), (v) and (vi) of this
Section 4(o) shall to the extent applicable be performed at (A) the
effectiveness of such Registration Statement and each post-effective
amendment thereto and (B) each closing under any underwriting agreement as
and to the extent required thereunder.
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(p) Hexcel shall not be obligated to effect more than (i) an
aggregate of two underwritten offerings or Demand Registrations pursuant to this
Agreement in any twelve month period or (ii) an aggregate of six underwritten
offerings or Demand Registrations pursuant to this Agreement during the entire
Registration Period, PROVIDED that no (A) underwritten offering or Demand
Registration that is not completed due to a postponement pursuant to Section 5
or (B) Piggyback Registration shall be included in any calculation for purposes
of this sentence.
SECTION 5. SUSPENSION OF OFFERINGS IN CERTAIN CIRCUMSTANCES.
(a) BUSINESS DEVELOPMENT DETERMINATION. Hexcel shall be entitled for the period
referred to below to postpone the filing of any Registration Statement or the
taking of any other action otherwise required to be prepared, filed or taken by
it pursuant to Sections 2, 3(a) or 4 hereof and/or to direct the suspension of
any public offering, sale or distribution of Registrable Securities pursuant to
this Agreement if the Independent Directors determine in good faith that any
disclosure that would be required in connection therewith would have a material
adverse effect on Hexcel and its Subsidiaries taken as a whole or any financing,
acquisition, disposition, merger, business combination, corporate
reorganization, or other transaction or development involving Hexcel or any
Subsidiary of Hexcel (a "Business Development Determination"). Such
postponement or direction (a "Business Development Period") shall continue until
such time as the Independent Directors determine that the preparation and/or
filing of such Registration Statement or the taking of any such action and/or
such public offering, sale or distribution would no longer have such a material
adverse effect. During the pendency of any Business Development Period, Ciba
shall provide prompt written notice to Hexcel whenever it has a present
bona fide intention to offer Registrable Securities hereunder (a "Bona Fide
Notice"). During the pendency of any Business Development Period and during any
period thereafter during which Hexcel is prevented from making a Business
Development Determination, Ciba shall provide prompt written notice to Hexcel
whenever it ceases to have a present bona fide intention to offer Registrable
Securities (a "Cessation Notice"). Each day commencing with the day on which a
Bona Fide Notice is delivered and ending on the day on which a Cessation Notice
is delivered shall be referred to as a "Blackout Day". Any particular Business
Development Period shall not continue for more than 90 Blackout Days and there
shall not be more than 150 Blackout Days in any 365-day period. If a Shelf
Registration Statement is not in effect at and after the end of a Business
Development Period and Ciba, having delivered a Bona Fide Notice, was prevented
from offering Registrable Securities hereunder because of the pendency of such
Business Development Period, Hexcel shall not make another Business Development
Deter-
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mination until the earlier of the consummation of the offering that was
previously postponed because of such Business Development Period or the delivery
of a Cessation Notice. If a Shelf Registration Statement is in effect at and
after the end of a Business Development Period that includes a Blackout Day,
Hexcel shall not make another Business Development Determination within 45 days
of the expiration of such Business Development Period unless Ciba earlier
delivers a Cessation Notice. Hexcel shall, as promptly as practicable, give
Ciba written notice of any Business Development Determination. Ciba and the
Ciba Entities shall be obligated to suspend any public offering, sale or
distribution of Registrable Securities in accordance with Hexcel's directions
and for the period provided in this Section 5(a).
(b) RULE 10b-6 ELECTION. In the event that Hexcel or a Subsidiary of
Hexcel plans to repurchase or bid for securities of Hexcel in the open market on
a private solicited basis or otherwise and the Independent Directors determine
that any such repurchase or bid may not under Rule 10b-6 under the Securities
Act ("Rule 10b-6") be commenced or consummated due to the existence of a
"distribution" (within the meaning of Rule 10b-6, but including in any event any
offers or sales under any Registration Statement filed pursuant to this
Agreement) and/or the possible commencement of a distribution by Ciba or the
Ciba Entities, Hexcel shall be entitled to postpone taking any action otherwise
required to be taken by it pursuant to Sections 2, 3(a) or 4 above and/or direct
that Ciba and the Ciba Entities suspend such distribution and/or postpone any
distribution that has not yet been commenced (a "Rule 10b-6 Election"), and Ciba
and the Ciba Entities shall be obligated to suspend or postpone such
distribution for such period as the Board shall specify in such request, except
that the suspension or postponement relating to any particular Rule 10b-6
Election shall not exceed 60 days nor shall the aggregate suspensions or
postponements relating to all Rule 10b-6 Elections during any twelve month
period exceed 90 days, at the end of each of which periods Hexcel shall suspend
all bids or repurchases by it that gave rise to the Rule 10b-6 Election. No
Rule 10b-6 Election shall occur within 60 days of the expiration of a
postponement or suspension caused by another Rule 10b-6 Election. Hexcel shall,
as promptly as practicable, give Ciba and the Ciba Entities set forth in
Section 9(h), as updated from time to time, written notice of any such
Rule 10b-6 Election. As promptly as practicable after the time that the
Independent Directors determine that Ciba and the Ciba Entities may commence or
recommence their distribution without causing Hexcel or such Subsidiary to be in
violation of Rule 10b-6, Hexcel shall give Ciba and the Ciba Entities set forth
in Section 9(h), as updated from time to time, written notice of such
determination.
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<PAGE>
SECTION 6. REGISTRATION EXPENSES. Hexcel shall bear all costs and
expenses incurred by it in connection with the performance of its obligations
under Sections 2, 3 and 4 hereof (other than SEC and Blue Sky filing fees)
including fees and disbursements of its counsel and accountants and printing
expenses. Ciba shall pay all SEC and Blue Sky filing fees incurred in
connection with the registration of Registrable Securities in accordance with
this Agreement and all other expenses incurred in connection with the
registration, offering and sale of Registrable Securities, including the fees
and disbursements of counsel for Ciba and the Ciba Entities.
SECTION 7. INDEMNIFICATION AND CONTRIBUTION. (a) INDEMNIFICATION OF
CIBA AND THE CIBA ENTITIES. In the case of any offering or sale of Registrable
Securities covered by this Agreement, Hexcel shall indemnify and hold harmless
Ciba, the Ciba Entities and each person affiliated with or retained by Ciba and
the Ciba Entities and who may be subject to liability under any applicable
securities laws, against any and all losses, claims, damages or liabilities to
which they or any of them may become subject under the Securities Act or any
other statute or common law of the United States of America or political
subdivision thereof, or any other country or political subdivision thereof or
otherwise, including, subject to Section 7(c) below, any amount paid in
settlement of any litigation commenced or threatened (including any amounts paid
pursuant to or in settlement of claims made under customary indemnification or
contribution provisions of any underwriting agreement entered into by Ciba or
the Ciba Entities in connection with any offering or sale of Registrable
Securities pursuant to this Agreement), and shall, subject to Section 7(c)
below, promptly reimburse them, as and when incurred, for any reasonable legal
fees, disbursements and other expenses incurred by them in connection with
investigating any claims and defending any actions, insofar as any such losses,
claims, damages, liabilities or actions shall arise out of or shall be based
upon any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement (or in any preliminary or final
Prospectus included therein) relating to the offering and sale of such
Registrable Securities, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein (in the case of a Prospectus, in light of the circumstances under which
they were made) not misleading; PROVIDED, HOWEVER, that Hexcel will not be
liable in any case to the extent that any such loss, claim, damage, liability or
action arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made therein in reliance upon
and in conformity with written information furnished to Hexcel or its
representatives or advisors by or on behalf of Ciba or any such Ciba Entity
specifically for inclusion therein or in any
16
<PAGE>
amendment thereof or supplement thereto, including any such information
furnished pursuant to Section 4(l) hereof.
(b) INDEMNIFICATION OF HEXCEL. In the case of each offering or sale
of Securities covered by this Agreement, Ciba shall indemnify and hold harmless
Hexcel and each person, if any, who controls Hexcel within the meaning of
Section 15 of the Securities Act, each person affiliated with or retained by
Hexcel and who may be subject to liability under any applicable securities laws,
and each of Hexcel's directors and those officers of Hexcel who shall have
signed any Registration Statement, against any and all losses, claims, damages
or liabilities to which they or any of them may become subject under the
Securities Act or any other statute or common law of the United States of
America or political subdivision thereof, or any other country or political
subdivision thereof or otherwise, including, subject to Section 7(c) below, any
amount paid in settlement of any litigation commenced or threatened (including
any amounts paid pursuant to or in settlement of claims made under customary
indemnification or contribution provisions of any underwriting agreement entered
into in connection with any offering or sale of Registrable Securities pursuant
to this Agreement), and shall, subject to Section 7(c) below, promptly reimburse
them, as and when incurred, for any reasonable legal fees, disbursements and
other expenses incurred by them in connection with investigating any claims and
defending any actions, insofar as any such losses, claims, damages, liabilities
or actions shall arise out of or shall be based upon any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement (or in any preliminary or final Prospectus included therein) or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein (in the case of a
Prospectus, in light of the circumstances in which they were made) not
misleading; PROVIDED, HOWEVER, that Ciba shall not be liable in any case, except
to the extent such loss, claim, damage, liability or action arises out of or is
based upon written information furnished to Hexcel or its representatives or
advisors by or on behalf of Ciba or any Ciba Entity specifically for inclusion
in any Registration Statement or any preliminary Prospectus or Prospectus
contained in such Registration Statement, or in any amendment thereof or
supplement thereto, including any such information furnished pursuant to
Section 4(l).
(c) PROCEDURE FOR INDEMNIFICATION. Each party indemnified under
paragraph (a) or (b) of this Section 7, shall, promptly after receipt of notice
of the commencement of any action against such indemnified party in respect of
which indemnity may be sought, notify the indemnifying party in writing of the
commencement thereof. The omission of any indemnified party so to notify an
indem-
17
<PAGE>
nifying party of such action shall not relieve the indemnifying party from
any liability in respect of such action which it may have to such indemnified
party on account of the indemnity agreement contained in paragraph (a) or (b) of
this Section 7, except to the extent that the indemnifying party was or is
actually prejudiced thereby, and in no event shall relieve the indemnifying
party from any other liability which it may have to such indemnified party to
the extent the indemnifying party has not actually been prejudiced thereby. In
case any such action shall be brought against any indemnified party and such
indemnified party shall notify an indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party. If the indemnifying party so assumes the defense
thereof, it may not agree to any settlement of any such action as the result of
which any remedy or relief, other than monetary damages for which the
indemnifying party shall be responsible hereunder, shall be applied to or
against the indemnified party, without the prior written consent of the
indemnified party. An indemnifying party may not assume or jointly assume the
defense of an action if in the reasonable judgment of the indemnified party a
conflict of interest may exist between the indemnifying party and such
indemnified party with respect to such action. An indemnifying party who is not
entitled to, who elects not to, or who has not appointed counsel reasonably
satisfactory to the indemnified party within a reasonable time to, assume the
defense of an action shall be obligated to pay the fees and expenses of counsel
for the indemnified party; PROVIDED that the indemnifying party shall not be
obligated to pay the fees and the expenses of more than one counsel (plus local
counsel if reasonably necessary) for all parties who may be indemnified by such
indemnifying party with respect to such action, unless in the reasonable
judgment of any indemnified party a conflict of interest exists between such
indemnified party and any other indemnified party with respect to such action.
If the indemnifying party does not assume the defense of an action, it shall be
bound by any settlement to which the indemnified party agrees, irrespective of
whether the indemnifying party consents thereto PROVIDED, that if the
indemnifying party does not assume the defense of action because of a conflict
of interest that prevented it from doing so, then the indemnifying party shall
be bound by any settlement to which the indemnified party agrees and to which
the indemnifying party consents (which consent shall not be unreasonably
withheld). If any settlement of any claim is effected by the indemnified party
prior to commencement of any action relating thereto, the indemnifying party
shall be bound thereby only if it has consented in writing thereto. In any
action with respect to which the indemnifying party has assumed the defense
thereof, the indemnified party shall continue to be entitled to participate in
the
18
<PAGE>
defense thereof, with counsel of its own choice, PROVIDED that the
indemnifying party shall be relieved of the obligation hereunder to reimburse
the indemnified party for the costs thereof.
SECTION 8. CIBA TO CAUSE COMPLIANCE. Ciba shall cause each Ciba
Entity to perform its obligations hereunder and otherwise to act consistently
with Ciba's obligations hereunder and shall be liable for the failure of any
Ciba Entity (other than a Ciba Entity that ceases to be a Ciba Entity for
purposes of the Governance Agreement in accordance with Section 4.01(b) of the
Governance Agreement, provided that such entity agrees to become a party to, and
to be bound by the terms and provisions of, this Agreement) to do so.
SECTION 9. MISCELLANEOUS. (a) NO INCONSISTENT AGREEMENTS. Hexcel
has not as of the date hereof taken any actions in accordance with or entered
into, and except as expressly permitted by Section 5 hereof, Hexcel shall not
from the date hereof until the expiration of the Registration Period take any
actions in accordance with or enter into, any agreement or arrangement with
respect to any class of its securities that limits or interferes with or is
inconsistent with the rights granted to Ciba and the Ciba Entities herein or
otherwise conflicts with the provisions hereof.
(b) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may be amended, qualified, modified
or supplemented only by means of a written instrument executed by the affected
party or parties (it being understood that any such amendment executed by Ciba
shall bind all Ciba Entities, and no Ciba Entity may execute any such instrument
without Ciba's consent).
(c) ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned or transferred,
in whole or in part, by Hexcel, Ciba or any Ciba Entity except that (i) Ciba may
assign any or all of its rights, interests, and obligations under this Agreement
to any direct or indirect wholly owned Subsidiary of Ciba and, such Subsidiary
may assign any or all of its rights, interests and obligations under this
Agreement to another such Subsidiary or to Ciba, but no such assignment shall
relieve Ciba of any of its obligations under this Agreement, and (ii) any Ciba
Entity holding Registrable Securities that ceases to be a Ciba Entity in
accordance with Section 4.01(b) of the Governance Agreement shall continue to be
deemed a Ciba Entity for purposes of this Agreement until all Registrable
Securities held by such Ciba Entity can be sold without restriction, including
volume and manner of sale
19
<PAGE>
restrictions, under the Securities Act (it being understood that after such
time Hexcel shall have no further obligation to such Ciba Entity under this
Agreement). Subject to the preceding sentence, this Agreement shall be
binding upon, inure to the benefit of, and be enforceable by and against, the
parties and their respective successors and assigns. Any attempted
assignment or transfer in violation of this Section 9(c) shall be void.
(d) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which taken
together shall be considered one and the same agreement, it being understood
that the parties need not sign the same counterpart.
(e) INTERPRETATION. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof. Whenever the words "included", "includes" or "including" are
used in this Agreement they shall be deemed to be followed by the words "without
limitation".
(f) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York applicable to
agreements made and to be performed in said State, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law.
(g) CONSENT TO JURISDICTION. Each of Hexcel and Ciba 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 and Ciba 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 9(h) (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 and Ciba 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
20
<PAGE>
any such court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum.
(h) 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.
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
21
<PAGE>
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
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
(c) if to the Ciba Entities, to:
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 9(h) and (B) if given by fax, when such
fax is transmitted to the fax number specified in this Section 9(h), and the
appropriate confirmation is received.
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<PAGE>
The information set forth in this Section 9(h) as to Hexcel, Ciba and the
Ciba Entities may be amended or updated at any time and from time to time by
Hexcel, Ciba or the relevant Ciba Entity (including any additional or
subsequent Ciba Entities), as the case may be.
(i) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired
or affected thereby, it being intended that all of the rights and privileges of
the parties shall be enforceable to the fullest extent permitted by law.
23
<PAGE>
IN WITNESS WHEREOF, Ciba, on behalf of itself and the Ciba Entities,
and Hexcel by their duly authorized representatives have caused this Agreement
to be executed as of the day and year first above written.
CIBA-GEIGY LIMITED,
by /s/ JOHN M.D. CHEESMOND
------------------------------------
Name: John M.D. Cheesmond
Title: Head of Regional
by /s/ PETER RUDOLF
------------------------------------
Name: Peter Rudolf
Title: Senior Division Counsel
HEXCEL CORPORATION,
by /s/ STEPHEN C. FORSYTH
------------------------------------
Name: Stephen C. Forsyth
Title: Vice President
24
<PAGE>
Exhibit 10.23(a)
<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.
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<PAGE>
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
2
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Exhibit 10.24
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made the 29th day of February, 1996
BETWEEN:
(1) CIBA-GEIGY PLC (registered no. 170180) whose registered office is at
Hulley Road Macclesfield, Cheshire SK10 4NX ("Ciba");
(2) COMPOSITE MATERIALS LIMITED (registered no. 3069887), formerly known as
EuroMaterials Limited, whose registered office is at Hulley Road
aforesaid ("CML"); and
(3) HEXCEL CORPORATION a Delaware corporation whose principal place of
business is at 5794 West Las Positas Boulevard, P.O. Box 8181,
Pleasanton, CA 94588) ("Hexcel").
WHEREAS:
A. By an agreement dated 5th July 1995 and made between Ciba and CML (the
"Business Sale Agreement") as amended by a Supplemental Agreement dated
February, 1996 (the "Supplemental Agreement"), CML agreed to
purchase the Business (as defined in the Supplemental Agreement) as a
transfer of a going concern.
B. In the Business Sale Agreement the parties acknowledged that the
contracts of employment of each of the Employees of the Business
transferred to CML in accordance with the Transfer of Undertakings
(Protection of Employment) Regulations 1981. In addition CML agreed
under Clause 4 of that Business Sale Agreement in respect of pensionable
service of the Employees (as therein defined) on and from 4 July, to
provide pension benefits which were overall no less favourable than the
benefits which would have been provided under Ciba's Scheme for and in
respect of the Employees using the provisions of Ciba's Scheme which
were in force as at 4 July. The parties wish to confirm in this
Employment Agreement what measures shall apply in respect of pensions
and employment between Closing and the end of the Transitional Period
(as defined in this Employment Agreement) and after the Transitional
Period for and in respect of the Employees who are, or were, at the
relevant time, active members of Ciba's Scheme.
<PAGE>
C. By an agreement entered into on 29 September 1995 between Ciba-Geigy
Limited (1), Ciba-Geigy Corporation (2) and Hexcel (3) (the "Strategic
Alliance Agreement"), Ciba-Geigy Limited (the parent company of CML)
agreed to transfer its shareholding in CML to Hexcel or to such other
company as Hexcel shall determine.
D. Under the terms of the Strategic Alliance Agreement, Hexcel agreed to
and Ciba-Geigy Limited agreed to procure that Ciba and CML enter into
this Employment Agreement.
NOW IT IS HEREBY AGREED:
1. INTERPRETATIONS
1.1 In this Employment Agreement the following words shall have the
following meanings:
"Actuary's Letter" means the letter from Ciba's Actuary dated
February 1996 which is agreed and countersigned by
CML's Actuary and which is attached to this
Employment Agreement as Appendix A;
"Actuarial Assumptions" means the actuarial assumptions and methods
set out in the Actuary' Letter;
"Business" shall have the same meaning as specified in the
Strategic Alliance Agreement to which recital C of
this Employment Agreement refers;
"Contracted-out", have the same meanings as in the Pension
"contracting-out Schemes Act 1993 and any reference to
certificate", any person's guaranteed minimum
"contracted-out pension includes the spouse's guaranteed
employment" minimum pension;
"guaranteed minimum
pension"
"Ciba's Actuary" mean William M Mercer Limited of 30 Exchange
Street East Liverpool L2 3QB or such other actuary
or firm of actuaries as
2
<PAGE>
may be appointed by Ciba for the purposes
of this Employment Agreement;
"Ciba's Scheme" means The Ciba Pension Scheme established by an
Interim Deed dated 23 January 1972 and, where the
context permits, includes the trustees thereof;
"Closing" means closing of the Strategic Alliance Agreement;
"CML's Actuary" means R Watson & Sons of 21 Tothill Street,
Westminster, London SW1H 9LL or such other actuary
or firm of actuaries as may be appointed by CML
for the purposes of this Employment Agreement;
"CML's Scheme" means a retirement benefits scheme existing,
established or nominated by CML which is approved
or capable of approval as an exempt approved
scheme under Chapter I of Part XIV of Income and
Corporation Taxes Act of 1988 and which is
contracted out and where the context permits
includes the trustees thereof;
"Disclosure Letter" means the signed letter of even date from Ciba to
Hexcel in agreed terms;
"Employees" means those employees employed by CML in the
Business at Closing and the Lacquer Employees;
"Lacquer Employees" means the 20 employees listed in Appendix C who
are employed by Ciba in relation to the toll
manufacturing operation carried out at the Duxford
site for and behalf of Dynochem. The list of
employees described in Appendix C shall be subject
to such amendments as CML and Ciba agree be-
3
<PAGE>
tween Closing and the end of the Transitional
Period;
"Lloyds Arrangement" means the Personal Accident and Illness insurance
arranged with Colburn, French & Kneen Ltd issued
on 9 July 1991 under certificate number
AFT0044/31 and underwritten by Lloyd's;
"Option Form" means a form which is in all material respects
identical to the form set out in Appendix B to
this Employment Agreement, which form is to be
returned to Ciba's Scheme by the latest date
specified therein being a date not later than 2
months after the Pensions Transfer Date;
"Past Service Reserve" shall have the meaning set out in the Actuary's
Letter;
"Payment Date" means a date which is on or after the Pensions
Transfer Date and not later than ten business days
after the later of the dates on which:
(i) the Past Service Reserve has been calculated
by Ciba's Actuary and agreed by CML's Actuary
(or deemed to have been agreed as specified
in Clause 4.3); and
(ii) CML's Scheme has notified to Ciba that it
is able and willing to accept the Transfer
Amount.
"Pensionable Employees" means those Employees who are active members
of Ciba's Scheme, including any person who is
a member under the provisions of Ciba's Scheme
relating to temporary absence from duty or
maternity leave,
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<PAGE>
on the day before the Pensions Transfer Date;
"Pensionable Salary" means 104% (or where appropriate, and as indicated
on Employment Document 12, 100%) of contractual
salary or wages and such other emoluments as have
previously been determined are pensionable but
excluding, for the avoidance of doubt, any other
fluctuating emoluments;
"Pensions Transfer Date" means 6 April 1997 or such earlier date as may
be agreed in writing by Ciba and CML;
"Standard Life Scheme" means the tax exempt approved personal plan
insured with Standard Life established on 1 April
1991 for the benefit of Mr W. Hunt;
"Timing Adjustment Factor" means the ratio of the FT-SE Actuaries
All-Share (total return) index at the end of
the period in question to that same index at
the beginning of that period;
"Transfer Amount" means the Transfer Amount specified in the
Actuary's Letter;
"Transferring Member" means a Pensionable Employee who becomes a member
of CML's Scheme on the Pensions Transfer Date and
in respect of whom Ciba's Scheme receives, within
the time specified in the Option Form, a completed
Option Form, with option A (transfer payment)
selected, and who has not withdrawn such request
before the Payment Date;
"Transitional Period" means the period from and including Closing up to
but excluding the Pensions Transfer Date;
5
<PAGE>
"Voluntary Fund" means those funds comprising voluntary
contributions paid by the Transferring Members and
the investments and monies representing those
contributions and any income derived therefrom,
excepting any voluntary contributions which have
been paid by the Transferring Members to purchase
additional pensionable service in Ciba's Scheme
which will be taken into account in the
calculation of the Past Service Reserve;
"Warranties" means those warranties relating to pensions and
employment matters as set out in Clause 12 of this
Employment Agreement;
"Zurich Life Scheme" means the Zurich Life Assurance Company Limited
Terms Assurance Policy No: A27939Q-000-000 dated
27 April 1992 as varied by the Trust Deed and
Rules dated 26 May 1992 and the Deed of Assignment
of Policy dated 27 May 1992.
2. WARRANTIES
2.1 Save to the extent that Ciba has fairly disclosed facts and
documentation to CML against the Warranties in the Disclosure Letter,
Ciba agrees that as at the date of this Employment Agreement the
Warranties are true in all material respects. Each Warranty shall be
construed independently of the others. Ciba acknowledges that CML has
entered into this Employment Agreement in reliance on the Warranties.
2.2 None of the Warranties in this Employment Agreement shall survive
Closing.
3. INVITATION BY CML
3.1 CML hereby undertakes with Ciba to use its reasonable endeavours to
procure that the Pensionable Employees will be invited to become members
of CML's Scheme with effect from the Pensions Transfer Date.
6
<PAGE>
3.2 CML will as soon as practicable issue the Option Form to each
Pensionable Employee.
4. CALCULATION OF PAST SERVICE RESERVE
4.1 Ciba shall procure that Ciba's Actuary shall, within 2 months of CML
notifying Ciba's Actuary of any adjustments as required under Clause
8.3.3, calculate and certify to CML's Actuary the Past Service Reserve.
CML shall promptly provide Ciba with such information in CML's
possession or control as Ciba or Ciba's Actuary may reasonably require
to facilitate the calculations of the Past Service Reserve. The
certification provided by Ciba's Actuary shall include a statement of
that part of the Part Service Reserve which relates to each Transferring
Member.
4.2 Ciba will procure that Ciba's Actuary shall, within 3 months after the
Pensions Transfer Date, promptly provide to CML's Actuary such data and
other information as CML's Actuary may reasonably require to agree to the
calculation of what is the Past Service Reserve.
4.3 CML's Actuary shall have 2 months, from later of the date on which he
receives certification of the Past Service Reserve from Ciba's Actuary
under paragraph 4.1 and the date on which he receives the data and other
information under paragraph 4.2, to agree the calculation of the Past
Service Reserve or raise any objection that it is, or may be, incorrect
or not in accordance with the terms of this Employment Agreement.
Subject thereto, the certification by Ciba's Actuary of the Past Service
Reserve shall be deemed to have been agreed by CML's Actuary at the
expiry of such 2 months.
4.4 Any dispute between Ciba's Actuary and CML's Actuary concerning the Past
Service Reserve shall, in the absence of agreement between them within
30 days of the party concerned having notified the other of the dispute,
be referred to an independent actuary chosen by agreement between the
parties or, failing agreement, appointed by the President for the time
being of the Institute of Actuaries at the instance of either party.
The independent actuary shall determine the matter in dispute acting as
an expert and not as an arbitrator and his decision shall be final and
binding. The fees and expenses of the independent actuary and of the
President of the Institute of Actuaries shall be borne equally between
Ciba and CML.
7
<PAGE>
4.5 Ciba shall procure as soon as reasonably practicable and in any event no
later than is prescribed under Clause 4.2 that Ciba's Actuary shall
provide CML's Actuary with a written statement on the actuarial
valuation of the Ciba Scheme which valuation shall have an effective
date of 31 March 1996 (or such other date as may be chosen for the
effective date of the actuarial valuation) and which valuation was made
by Ciba's Actuary for the purpose of recommending the employer's
contribution rate payable to the Ciba Scheme from the Pensions Transfer
Date. The written statement shall be confined to matters which are
pertinent to this Employment Agreement and the Actuary's Letter and
shall include all such information as, in the opinion of Ciba's Actuary,
CML's Actuary shall reasonably require.
4.6 In addition Ciba shall procure that Ciba's Actuary shall calculate,
within 14 days of receiving Mr. Hunt's written request, a transfer
amount in respect of Mr. Hunt's benefits in the Ciba Scheme to be paid
out of the Ciba Scheme to a suitable pension arrangement which is either
approved or capable of approval under Chapter I or Chapter IV of Part
XIV of the Income and Corporation Taxes Act 1988.
The transfer amount in respect of Mr Hunt's credited pensionable service
under the Ciba Scheme shall be calculated as a Past Service Reserve as
defined in the Actuary's Letter and in accordance with the Actuarial
Assumptions. For the avoidance of doubt it is agreed that this Past
Service Reserve shall not be adjusted to allow for the contribution rate
payable to the Ciba Scheme as the Pensions Transfer Date.
The transfer amount in respect of Pensionable Service accrued by Mr.
Hunt whilst he was an active member of the Ciba Scheme (and excluding
any credited pensionable service awarded to Mr. Hunt on his joining the
Ciba Scheme) shall be calculated in accordance with the requirements of
the Pension Schemes Act 1993 and shall be included within any transfer
payment paid out of the Ciba Scheme in respect of Mr. Hunt to the
suitable arrangement.
The total transfer amount payable in respect of Mr. Hunt shall be agreed
by CML's Actuary within 14 days (such agreement not to be unreasonably
withheld) and failing agreement shall be determined in accordance with
Clause 4.4. It shall then be adjusted to the date of payment as
described in the Actuary's Letter. For the avoidance of doubt no
interim payment will be made to Mr. Hunt's suitable pension arrangement.
8
<PAGE>
Ciba shall use its best endeavours to procure that the total transfer
amount payable in respect of Mr Hunt shall be paid out of the Ciba
Scheme to the suitable pension arrangement as soon as reasonably
practicable following agreement of the calculation.
The total transfer amount will not be available unless Mr Hunt's
written request is received by Ciba before the Pensions Transfer Date,
nor will it be available if Mr. Hunt's benefit in the Ciba Scheme have
been brought into payment or otherwise discharged.
5. TRANSFER OF TRANSFER AMOUNT
5.1 Ciba's Actuary shall on the Payment Date calculate and certify to CML's
Actuary the Transfer Amount and shall promptly provide to CML's Actuary
such data and information as CML's Actuary may reasonably require
promptly to agree the calculation of the Transfer Amount (such agreement
not to be unreasonably withheld). Subject to CML having performed its
obligations under this Employment Agreement and to the Transfer Amount
being agreed by the CML's Actuary, Ciba shall use its best endeavours to
procure that, on the Payment Date, Ciba's Scheme shall, subject to the
approval of the Pension Schemes Office of the Inland Revenue, transfer
the Transfer Amount to CML's Scheme adjusted in accordance with the
Actuary's Letter in respect of any interim payment made under Clause 14.
5.2 SHORTFALL PROVISION
If Ciba's Scheme does not pay the full amount of the Transfer Amount to
CML's Scheme on the Payment Date, Ciba shall, no later than 14 days
after the Payment Date, pay to CML, or if CML so requests in writing, to
CML's Scheme, an amount (the "Shortfall") equal to the sum by which the
Transfer Amount exceeds the amount of the payment (if any), paid by
Ciba's Scheme to CML's Scheme and Ciba shall pay compound interest at 2%
above the bank base rate on the Shortfall (or on any part thereof)
calculated on a day to day basis with monthly rests for so long as it
shall remain unpaid after the Payment Date.
5.3 CML shall within 14 working days after receipt of any payment (the
"Payment") under Clause 5.2 by CML pay, or procure the payment of,
the Payment to CML's Scheme. CML shall repay to Ciba a sum equal
to the amount of tax relief obtained by CML in respect of the
Payment paid to CML's
9
<PAGE>
Scheme on the date on which such relief is obtained. For these
purposes CML shall be treated as having obtained tax relief on
the date on which CML would have had a liability to pay corporation
tax or an increased liability to pay corporation tax but for the
payment of the shortfall to CML's Scheme.
5.4 OVERPAYMENT PROVISION
If Ciba's Scheme transfers, on or prior to the Payment Date, in
aggregate cash or other assets in excess of the Transfer Amount (the
"Excess") to CML's Scheme CML shall, within seven days of receiving
Ciba's written demand, pay or procure the payment to Ciba of an amount
equal to the Excess. If at the expiry of the seven day period no
payment has been made to Ciba, compound interest at 2% above the bank
base rate shall accrue on the Excess calculated from the Payment Date
on a day to day basis with monthly rests.
6. CML'S OBLIGATIONS
6.1 Subject to the rest of this Clause 6, and in particular Clause 6.3, CML
shall offer benefits for and in respect of the Pensionable Employees, in
relation to their employment on and after the Pensions Transfer Date,
for a period of five years commencing on Closing, on a basis which is
overall no less favourable than the basis of benefits to which the
Pensionable Employees as a group would have been entitled under Ciba's
Scheme if they had remained members thereof and if the provisions of
Ciba's Scheme at the Pensions Transfer Date had remained unchanged for
that period of 5 years.
6.2 For the said period of five years from Closing and subject to the receipt
of the Transfer Amount in full (including any amounts paid under
Clause 5.2 of this Employment Agreement) CML shall use its best
endeavours to procure that:
6.2.1 CML shall not exercise or cause to be exercised any right to amend or to
wind up CML's Scheme in such a way as to cause any reduction in the
benefits of the Transferring Members.
6.2.2 The Transferring Members shall not be required to contribute to the CML
Scheme at a rate expressed as a percentage of Pensionable Salaries which
is greater than the rate payable by the active members under the Ciba
Scheme as the Pensions Transfer Date and as disclosed in writing to CML
not later than the day before the Pensions Transfer Date.
10
<PAGE>
6.2.3 The rate of contribution paid by CML, or procured to be paid by CML, to
the CML Scheme from the Pensions Transfer Date until the expiry of the
five year period shall be at least equal to the rate, expressed as a
percentage of Pensionable Salaries, which is payable by the employers
participating in Ciba's Scheme to Ciba's Scheme as at the Pensions
Transfer Date and which is disclosed in writing to CML not later than
the day before the Pensions Transfer Date.
6.2.4 There shall be no refund of assets out of the CML Scheme to any of the
participating companies (including the Principal Company) whilst the CML
Scheme is ongoing.
6.3 For the said period of five years from Closing and subject to the
receipt of the Transfer Amount in full as aforesaid CML:
6.3.1 will not exercise or cause to be exercised any right to wind up the CML
Scheme except in circumstances in which CML deem there is no other
commercial alternative and CML has the prior written consent of the
Board of Hexcel Corporation.
6.3.2 will ensure that, if the CML Scheme were to be wound up, the CML Trustee
(for the time being of the CML Scheme) shall have an absolute discretion
(exercisable without the consent of CML or any other employer
participating in the CML Scheme) to augment the benefits payable to the
Transferring Members under the CML Scheme prior to any refund of assets
being paid to any employer participating in the CML Scheme.
6.4 Subject to receipt of the Transfer Amount in full (including any amounts
paid under Clause 5.2 of this Employment Agreement) CML shall use its
best endeavours to procure that the Transferring Members are awarded, in
respect of their pensionable employment (including credited pensionable
employment) in Ciba's Scheme before the Pensions Transfer Date, benefits
under CML's Scheme which are, in the opinion of CML's Actuary and as
agreed by Ciba's Actuary (or failing agreement as resolved in accordance
with Clause 4.4), overall no less favourable as determined on the basis
of the Actuarial Assumptions than the benefits which would have been
provided for and in respect of the Transferring Members under Ciba's
Scheme had they remained in membership thereof and by reference to the
provisions of the Ciba Scheme in force it the Pensions Transfer Date (of
which written details have been disclosed to CML).
11
<PAGE>
7. CIBA'S OBLIGATIONS
7.1 Ciba shall use its best endeavours to procure that, unless CML's prior
consent in writing is obtained (such consent not to be unreasonably
withheld) during the Transitional Period:
7.1.1 no new obligation or liability shall be imposed on CML unless it is also
imposed on all the other participating employers in the Ciba Scheme; and
7.1.2 no benefits additional to or in augmentation of the benefits payable or
prospectively payable in respect of the Pensionable Employees at Closing
shall be provided or promised prior to the Payment Date which would
result in an increase in CML's normal contribution rate (that is, in the
absence of any adjustment to the contribution rate for Ciba's Scheme's
past service funding level) to CML's Scheme on or after the Pensions
Transfer Date by more than 4% of Pensionable Salary as determined on the
basis prescribed in the Actuarial Assumptions.
7.1.3 that the Trustee will not trigger the winding up of the Ciba Scheme.
For the avoidance of doubt CML shall not withhold its consent to the
winding up of the Ciba Scheme during the Transitional Period if, during
the Transitional Period, the circumstances pertaining to the CML Scheme
change to such an extent that the continuation of the Ciba Scheme is no
longer appropriate in the written opinion of Ciba's Actuary.
7.2 Ciba shall, as soon as reasonably practicable, and in any event not less
than two months prior to the Pensions Transfer Date, inform CML in
writing of any benefit changes in the benefits of the Pensionable
Employees or Mr Hunt implemented during the Transitional Period. CML
shall have the opportunity to review and agree (such agreement not to be
unreasonably withheld) any announcements issued by either Ciba or Ciba's
Scheme to the Pensionable Employees who are active members of the Ciba
Scheme prior to the end of the Transitional Period or to Mr Hunt which
relate to their benefits accrued under the Ciba Scheme.
8. TRANSITIONAL PERIOD
8.1 Ciba and CML shall use all reasonable endeavours to procure the
continued inclusion of CML in Ciba's Scheme during the Transitional
Period and the continued inclusion of CML on the contracting-out
certificate.
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<PAGE>
8.2 During the Transitional Period CML shall procure payment of the
following:
8.2.1 contributions in respect of each Pensionable Employee who is an active
member of Ciba's Scheme during the Transitional Period as required under
the rules of Ciba's Scheme in force from time to time;
8.2.2 employer contributions in respect of each Pensionable Employee who is an
active member of Ciba's Scheme at the rate of Pensionable Salary which
is payable from time to time by an employer participating in Ciba's
Scheme save that, in the event that the employer contributions shall
exceed 12% of Pensionable Salary, the Transitional Period shall, with
the agreement of CML, end on the date such rate comes into effect.
8.3 CML undertakes that it shall during the Transitional Period (so far as
it is within its power):
8.3.1 comply in all respects with the provisions of Ciba's Scheme which apply
to all the other participating employers under Ciba's Scheme;
8.3.2 not do or omit to do any act or thing whereby approval of Ciba's Scheme
as an exempt approved scheme or its status as a contracted out scheme
would be prejudiced;
8.3.3 notify Ciba's Actuary (as required under Clause 4.1), within 2 months of
the Pensions Transfer Date, of any increase or increases after Closing
of pay which is relevant for the purposes of calculating benefits under
Ciba's Scheme at a rate which in total for the group of Transferring
Members exceeds in any year the increase in the retail prices index plus
2.5 per cent per annum. In such case the Past Service Reserve shall be
reduced so that it does not exceed the sum that would be calculated if
it was instead based on Pensionable Salary applicable at the Pensions
Transfer Date but restricted to Pensionable Salary applicable at Closing
increased for the Transitional Period by the increase in the retail
prices index plus 2.5 per cent per annum;
8.3.4 notify Ciba's Scheme on the retirement, prior to normal pension age, of
a Pensionable Employee during the Transitional Period as a result of
redundancy without actuarial reduction to the pension for early payment
and to pay to Ciba's Scheme a special additional employer contribution
within 7 days of a demand for such a contribution by Ciba or Ciba's
Scheme provided that each of the other participating companies would
have been required to pay an
13
<PAGE>
additional employer contribution in these circumstances. The special
additional contribution shall be calculated in each such case using
the method and factors as used under Ciba's Scheme from time to
time in the case of early retirements on redundancy (and as
disclosed in writing to CML by Ciba) resulting from a
restructuring of the business and as would apply to any other
participating company in the same circumstances.
8.4 CML undertakes that, for a period commencing on the Pensions Transfer
Date and concluding two years after Closing, the following terms shall
apply in the case of a Transferring Member who ceases employment with
CML and recommences employment, with CML's approval, with Ciba and
rejoins Ciba's Scheme. In the case of each such Transferring Member CML
shall use its best endeavours to procure that any transfer amount paid
from CML's Scheme shall be equal to:
8.4.1 the part of the Transfer Amount which relates to that Transferring
Member adjusted by the Timing Adjustment Factor from the payment date to
the date the transfer amount is paid from CML's Scheme; plus
8.4.2 the total contributions paid by the Transferring Member to CML's Scheme
multiplied by the ratio of the joint contribution rate payable by CML
and by employees to CML's Scheme to the employee contribution rate and
adjusted by the Timing Adjustment Factor assuming that contributions
were paid quarterly in advance.
9. LACQUER EMPLOYEES
CML agrees with Ciba that it shall offer to the Lacquer Employees the
opportunity to join CML, on such terms and conditions of employment
(excluding any terms regarding pensions, or the opportunity to buy Ciba
shares, or any terms as to job function, title or location which will be
different due to Dynochem's withdrawal) as they enjoyed whilst employed
at the Dynochem site and which terms and conditions are disclosed to and
agreed by CML prior to Closing. CML agrees with Ciba that it shall
recognise the continuity of employment of the Lacquer Employees whilst
they were employed by Ciba for contractual but not statutory purposes,
should they become employed by CML. The offer of employment by CML
shall commence at a date to be agreed between the parties which date
shall be no later than 30 June 1996.
14
<PAGE>
10. APPROVALS
The provisions of this Employment Agreement are subject to the
appropriate approval and agreement of the Pension Schemes Office of
the Inland Revenue and the Occupational Pensions Board being obtained,
which the parties to this Agreement shall use their reasonable
endeavours to secure as soon as is reasonably practicable.
11. ADDITIONAL VOLUNTARY CONTRIBUTIONS
Notwithstanding the preceding provisions of this Employment Agreement
if within Ciba's Scheme there is a Voluntary Fund the Voluntary Fund
and the benefits payable or prospectively or contingently payable
shall be disregarded for all the preceding provisions of this
Employment Agreement. Ciba shall nevertheless use all reasonable
endeavours to procure that the part of the Voluntary Fund which is
attributable to the Transferring Members in accordance with the
provisions of Ciba's Scheme is transferred to CML's Scheme on the
Payment Date.
12. WARRANTIES
12.1 In relation to pensions issues Ciba hereby warrants to and with
Hexcel as follows:
12.1.1 Except for Ciba's Scheme, the Standard Life Scheme, the Zurich Life
Scheme and the Lloyd's Arrangement (the latter three arrangements
together called the "Hunt Schemes") there are no:
12.1.1.1 agreements or arrangements (whether exempt approved or unapproved)
for the provision by Ciba or CML of any retirement or other benefit
(including any pension, share option, share incentive, annuity,
lump sum, gratuity or other like benefit) and neither Ciba nor
CML has any obligation, whether legally binding or established
by custom, to pay any pension or make any other payment after
retirement or death or otherwise to provide relevant benefits
within the means of Section 612 of the Income and Corporation
Taxes Act 1988 to or in respect of any Employees or for any
dependents of any such person; or
12.1.1.2 informal or ex-gratia pension arrangements or schemes offered
by Ciba or CML to any Employee or any dependent of any such person.
15
<PAGE>
Ciba and CML are not party to any scheme or arrangement having as its
purpose or one of its purposes the making of payments or the provision
of benefits to any Employee (or dependent of any such person) as set
out in Clauses 12.1.1.1 and 12.1.1.2.
12.1.2 Details of Ciba's Scheme and the Hunt Schemes have been given to
Hexcel in the form of:
12.1.2.1 copies of all current trust deeds and rules (if any) governing or
relating to Ciba's Scheme and the Hunt Schemes;
12.1.2.2 copies of the current explanatory booklets and any resolutions
and announcements relating to benefits or contributions issued
to the Pensionable Employees and who are active members of Ciba's
Scheme and to Mr Hunt; and
12.1.2.3 a copy of the report of the last actuarial valuation or funding
review (if any) of Ciba's Scheme and the Hunt Schemes which has been
received (in draft or final form) prior to the date hereof.
12.1.3 Ciba warrants that it has disclosed to Hexcel details of all benefits
payable or prospectively payable under Ciba's Scheme in respect of the
Pensionable Employees who are active members of it including any
augmentations of their benefits and that it has disclosed to Hexcel
all benefits payable as prospectively payable, whether legally binding
or established by custom, under the Hunt Schemes in respect of
Mr Hunt and any augmentations of his benefits.
12.1.4 No discretion or power has been exercised under Ciba's Scheme and the
Hunt Schemes in respect of the Employees to:
12.1.4.1 augment benefits to which members are entitled at the date hereof
thereunder;
12.1.4.2 provide thereunder in respect of Employees thereof a benefit which
would not otherwise be provided thereunder in respect of such
Employees; or
12.1.4.3 pay a contribution thereto which would not otherwise have been paid.
12.1.5 There are no actions, suits or claims outstanding, pending or
threatened against Ciba's Scheme or the Hunt Schemes in respect of
any act, event, omission or other matter arising out of or in
connection with Ciba's Scheme or the Hunt Schemes in relation to any
of the Employees.
16
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12.1.6 There are no contributions to Ciba's Scheme or the Hunt Schemes in
respect of the Employees (including contributions payable by
Employees themselves) which have fallen due to Ciba's Scheme or the
Hunt Schemes or to an insurance company but are unpaid and since the
date of the last actuarial valuation or funding review referred to
above contributions made to Ciba's Scheme or the Hunt Schemes by or
in respect of the Employees have been at the rates recommended in
such valuation or review. Ciba's Scheme and the Hunt Schemes have
been funded to the extent recommended by Ciba's Actuary.
12.1.7 Ciba's Scheme and the Zurich Life Scheme are approved by the Board of
Inland Revenue for the purpose of Chapter I of Part XIV of the Income
and Corporation Taxes Act of 1988 and Ciba is not aware, having made
all reasonable enquiries, of any circumstances which might give the
Inland Revenue reason to withdraw such approval. Ciba's Scheme
complies with any relevant legislation relating to occupational
pension schemes and to relevant benefit arrangements and the
requirements of the Occupational Pensions Board affecting schemes
which are contracted-out. So far as Ciba is aware and it is within
Ciba's control the Hunt Schemes comply with the provisions of their
respective governing documents and any relevant legislation relating
to these relevant benefits arrangements.
12.1.8 Ciba holds a current contracting-out certificate issued in relation to
Ciba's Scheme which covers CML.
12.1.9 No retirement benefits scheme (as defined in Section 611 of the Income
and Corporation Taxes Act of 1988) in which the Employees participate
or have participated has been or is in the process of being wound up.
12.1.10 STANDARD LIFE SCHEME
The Standard Life Scheme is an exempt approved personal pension scheme
under Chapter IV of Part XIV of the Income and Corporation Taxes Act
of 1988.
12.1.11 CML has no liability to pay or provide any post retirement medical
benefits to any existing or former Employees.
12.2 In relation to employment issues Ciba hereby warrants to and with
Hexcel as follows (and for the purposes of this Clause 12.2, the
"Employees" shall mean
17
<PAGE>
those employees employed by CML in the Business at the date hereof
and the Lacquer Employees):
12.2.1 Full particulars of the identity, age, length of service, remuneration
(including any bonus or commission entitlements), date of birth and
start date of all the Employees, copies of standard contracts of
employment and details of all other terms and conditions of employment
of the Employees and a statement of all benefits provided to Employees
together with copies of all documentation relating to the benefit
schemes are fully and accurately set out in the Disclosure Letter.
For the avoidance of doubt Ciba confirms that the standard contracts,
terms and conditions of employment and benefits of the Lacquer
Employees are the same as those of the Employees employed by CML in
the Business at the date hereof.
12.2.2 Since 31 December 1994 or where employment commences after that date
since the commencement date of the employment, no change has been made
in the rate of remuneration or pension or other benefits of any senior
manager (a senior manager being an Employee in receipt of remuneration
in excess of L25,000 per annum).
12.2.3 There are no claims pending or threatened against Ciba or CML by any
Employee or former employee of the Business of any kind whatsoever
including but without limitation claims in respect of any accident or
injury or for unfair dismissal, wrongful dismissal, redundancy pay,
sex or race discrimination, equal pay, breach of contract, or
unlawful deductions. Neither Ciba nor CML has given any notice of any
redundancies to the Secretary of State relating to any Employee or
former employee of the Business. Ciba and CML have materially
complied with their obligations under all statutes and regulations,
codes, orders and awards in connection with the Employees.
12.2.4 Neither Ciba nor CML has entered into any recognition agreement with a
trade union nor has either done any act which might be construed as
recognition in relation to the Employees. There is no existing or
threatened or pending industrial or trade dispute involving Ciba or
CML in relation to any of the Employees.
12.2.5 Save as set out in the Disclosure Letter all subsisting contracts of
service of Employees are determinable at any time on three months'
notice or less without compensation (other than compensation in
accordance with the Em-
18
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ployment Protection (Consolidation) Act 1978, as amended by the
Employment Act 1982).
12.2.6 So far as Ciba is aware, having made all reasonable enquiries, there
are no circumstances giving rise to a debt as a result of the
operation of Section 144 of the Pension Schemes Act 1993 or otherwise.
13. DEFICIENCY ON WINDING-UP
13.1 In the event that a debt (the "Debt") shall be owing or shall become
due from CML in respect of its participation in Ciba's Scheme on and
after Closing as a result of the operation of Section 144 of the
Pension Schemes Act 1993 or otherwise, Ciba undertakes to indemnify
CML on demand for the total amount of the Debt together with interest
thereon from the date on which CML makes payment of the Debt to the
date payment is made under this paragraph.
13.2 No payment shall be due from Ciba under Clause 13.1 if the reason for
the Debt becoming due or owing is the insolvency of CML or any act or
omission of CML.
13.3 If the necessity to undertake a calculation of the amount of the Debt
arises as a result of the insolvency of CML or any act or omission of
CML, the cost of calculating the amount of the Debt shall be borne by
CML.
14. INTERIM PAYMENT
Ciba undertakes to pay or procure the payment of an interim payment (the
"Interim Payment") to CML's Scheme within 30 days of the Pensions Transfer Date
provided that:
14.1 the Interim Payment shall be equal to 20% of the estimated Transfer
Amount (assuming that all Pensionable Employees become Transferring
Members). The Interim Payment shall be calculated by Ciba's Actuary
and must be confirmed as reasonable by CML's Actuary;
14.2 such payment shall be made on account of the Transfer Amount and
adjustment shall be made to the Transfer Amount in accordance with the
Actuary's Letter.
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15. CONTINUING EFFECT
15.1 This Employment Agreement shall be binding on and shall enure for the
benefit of each party's successors but shall not be assignable by
either party without the prior written consent of the other.
15.2 Hexcel shall use all reasonable endeavours to procure the performance
by CML or its successor in relation to the Business (in so far as such
successor shall be a member of the Hexcel group of companies) of its
obligations under this Employment Agreement. Ciba shall use all
reasonable endeavours to procure the performance by any successor of
it of the obligations of Ciba under this Employment Agreement.
IN WITNESS the parties have executed this Employment Agreement the day and year
first before written.
SIGNED by ) /s/ JOHN BREWER
for and on behalf of ) John Brewer
CIBA-GEIGY PLC ) Director
SIGNED by ) /s/ WILLIAM HUNT
for and on behalf of ) William Hunt
COMPOSITE MATERIALS LTD ) Director
SIGNED by ) /s/ WILLIAM P. MEEHAN
for and on behalf of ) William P. Meehan
HEXCEL CORPORATION ) Vice President, Chief Financial
Officer and Treasurer
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EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS - UNAUDITED
Hexcel reports net income (loss) per share data on primary and fully
diluted bases. Primary net income (loss) per share is based upon the weighted
average number of outstanding common shares and common equivalent shares from
stock options. Fully diluted net income (loss) per share is based upon (a) the
weighted average number of outstanding common shares and common equivalent
shares from stock options and adjusted for the assumed conversion of the 7%
convertible subordinated debentures and (b) net income (loss) increased by the
expenses on the debentures. Computations of net income (loss) per share on the
primary and fully diluted bases for 1995, 1994 and 1993 were:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
PRIMARY NET INCOME (LOSS) PER SHARE AND EQUIVALENT SHARE 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) from continuing operations $ 3,201 $(28,080) $(79,872)
Loss from discontinued operations (468) (1,890) (10,623)
Cumulative effect of change in accounting for income taxes 4,500
- ------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 2,733 $(29,970) $(85,995)
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding 15,742 7,310 7,330
Weighted average common equivalent shares from stock options
- ------------------------------------------------------------------------------------------------------------------------------
Weighted average common shares and equivalent shares 15,742 7,310 7,330
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Primary net income (loss) per share and equivalent share from (1):
Continuing operations $ 0.20 $ (3.84) $ (10.89)
Discontinued operations (0.03) (0.26) (1.45)
Cumulative effect of change in accounting for income taxes 0.61
- ------------------------------------------------------------------------------------------------------------------------------
Primary net income (loss) per share and equivalent share (1) $ 0.17 $ (4.10) $ (11.73)
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
FULLY DILUTED NET INCOME (LOSS) PER SHARE AND EQUIVALENT SHARE
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations $ 3,201 $(28,080) $(79,872)
Loss from discontinued operations (468) (1,890) (10,623)
Cumulative effect of change in accounting for income taxes 4,500
- ------------------------------------------------------------------------------------------------------------------------------
Net income (loss) 2,733 (29,970) (85,995)
Debenture interest and issuance costs 1,184 1,204 1,213
- ------------------------------------------------------------------------------------------------------------------------------
Adjusted net income (loss) $ 3,917 $(28,766) $(84,782)
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding 15,742 7,310 7,330
Weighted average common equivalent shares
Stock options
7% convertible debentures 834 804 804
- ------------------------------------------------------------------------------------------------------------------------------
Weighted average common shares and equivalent shares 16,576 8,114 8,134
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Fully diluted net income (loss) per share and equivalent share from (1):
Continuing operations $ 0.20 $ (3.84) $ (10.89)
Discontinued operations (0.03) (0.26) (1.45)
Cumulative effect of change in accounting for income taxes 0.61
- ------------------------------------------------------------------------------------------------------------------------------
Fully diluted net income (loss) per share and equivalent share (1) $ 0.17 $ (4.10) $ (11.73)
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For 1995, 1994 and 1993 the primary and fully diluted net income (loss) per
share were the same because the fully diluted computation was antidilutive.
<PAGE>
Exhibit 21
<PAGE>
HEXCEL SUBSIDIARIES
Hexcel Far East (California)
Hexcel International (California)
Hexcel Alpha Corp. (Delaware)
Hexcel Beta Corp. (Delaware)
Hexcel Pottsville Corporation (Delaware)
Hexcel Technologies Inc. (Delaware)
Hexcel Foreign Sales Corporation (Guam)
Hexcel S.A. (Belgium)
Hexcel do Brazil Servicos S/C Ltda. (Brazil)
Brochier S.A. (France)
Confection et Diffusion de Stores et Rideaux (France)
Hexcel S.A. (France)
Salver S.r.l. (Italy)
Hexcel Chemical Products Ltd. (U.K.)
Hexcel Composite Materials Ltd. (U.K.)
Hexcel (U.K.) Limited (U.K.)
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference of our report dated March 1,
1996 (which report contains explanatory paragraphs regarding Hexcel
Corporation's emergence from Chapter 11 bankruptcy, acquisition of the Ciba
Composites Business, and a change in accounting for income taxes) appearing in
this Annual Report on Form 10-K for the year ended December 31, 1995, in the
following registration statements:
- - 33-439478 on Form S-8 regarding the 1988 Management Stock Program;
- - 333-1225 on Form S-8 regarding the Incentive Stock Plan.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Oakland, California
March 29, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,829
<SECURITIES> 0
<RECEIVABLES> 68,491
<ALLOWANCES> 2,603
<INVENTORY> 55,475
<CURRENT-ASSETS> 128,055
<PP&E> 203,580
<DEPRECIATION> 117,625
<TOTAL-ASSETS> 230,602
<CURRENT-LIABILITIES> 66,485
<BONDS> 88,342
0
0
<COMMON> 181
<OTHER-SE> 48,193
<TOTAL-LIABILITY-AND-EQUITY> 230,602
<SALES> 350,238
<TOTAL-REVENUES> 350,238
<CGS> 283,148
<TOTAL-COSTS> 283,148
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,682
<INCOME-PRETAX> 6,514
<INCOME-TAX> 3,313
<INCOME-CONTINUING> 3,201
<DISCONTINUED> (468)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,733
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
